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Bankers’
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20th June 2021
COVER STORY
Can Banks
Survive
Fifty Years?
WEEKLY QUIZ
Uniform Rules for Collection –
ICCP 522 [URC-522]
JAIIB TOPIC
SECURITY CONSIDERATIONS
Risk Concern Areas, Types of
Threats and Control Mechanism
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Banking & Economics
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BANKERS’ WEEKLY (www,bankershelpline.com) Email : care@bankershelpline.com
Volume V, Issue 12
20th June, 2021

Bankers’
Weekly
Indians' funds in Swiss banks: Govt seeks details
from Swiss authorities
RBI will stick to pushing economic growth at this
stage: Deputy guv MK Jain
Barring a few like Essar, Banks have lost 80% dues
in top NCLT resolutions
Regulatory system for digital banking intermediar-
ies likely
Indian economy turns the corner in June, show da-
ta
RBI economists call rising inflation transitory, ow-
ing to pent-up demand
15 banks are joining forces to use blockchain to
power Letters of Credit — a move that could be a
boon for MSMEs
Bank staff seek job security assurance after privati-
zation
Travel, tourism, retail may be the next bad loan
fronts for Indian banks
Forex has helped avert a currency run, but continu-
ous inflow has its risks
Asian central banks build dollar war chests, prep
for US Fed policy
India's credit ecosystem resilient despite Covid-19
pandemic: Experian
Banks may drop overseeing panel for quicker reso-
lution
Second COVID wave impacts bank deposits, curren-
cy holding with public: RBI
New auditors: RBI clarifies on tenure, eligibility
norms
NEWS IN BRIEF
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Indians' funds in Swiss banks: Govt seeks

details from Swiss authorities
The finance ministry on Saturday asserted that Indi-
an customer deposits in Swiss banks have fallen since
2019, but said it is seeking details from Swiss authori-
ties on the relevant facts along with their view on pos-
sible reasons for changes in the funds parked by indi-
viduals and entities in 2020.
In a statement, the ministry said the deposits have
halved but did not give numbers. Quoting data from
Switzerland's central bank, PTI had reported on June
17 that funds parked by Indian individuals and firms in
Swiss banks, including through India-based branches
and other financial institutions, jumped to a 13-year
high of 2.55 billion Swiss francs (over Rs 20,700 crore)
in 2020 on a sharp surge in holdings via securities and
similar instruments, though customer deposits fell. In
its statement, the ministry said the figures "do not in-
dicate the quantum of much debated alleged black
money held by Indians in Switzerland. Further, these
statistics do not include the money that Indians, NRIs
or others might have in Swiss banks in the names of
third-country entities." The ministry noted that cus-
tomer deposits have actually fallen from the end of
2019. The funds held through fiduciaries have also
more than halved from 2019-end. "The biggest in-
crease is in 'Other amounts due from customers'.
These are in form of bonds, securities and various oth-
er financial instruments," the ministry added. It also
listed out the reasons that could have led to the in-
crease in deposits, including rising business transac-
tions by Indian companies, rise in deposits owing to
the business of Swiss bank branches located in India
and increase in inter-bank transactions.
TOP

RBI will stick to pushing economic

growth at this stage: Deputy guv MK Jain
The Reserve Bank of India will stick to pushing
growth of the economy at this stage, said deputy
governor MK Jain on Friday. “The inflation concerns
are valid but we have to prioritise growth at this
stage”, he said at a webinar, even as he acknowl-
edged that real interest rates in the economy may
now be negative.
He also said the forthcoming Financial Stability
Report of RBI would show the NPA situation of the
banks have been contained. “Without getting into
numbers let me say the gross NPAs of the banks may
end up a little bit lower than March 2020, while that
of NBFCs may end up a little higher, but not out of
the range”. He also said the numbers collated from
the banks by the RBI do not indicate any major slip-
pages from the large corporates. The deputy gover-
nor said he was hopeful that there will not be any
“flood” of cases in the bankruptcy courts. “By and
large the stress in the corporate sector has been
managed well and has been recognised”.
The last Financial Stability Report issued in De-
cember had projected the NPAs of the banking sec-
tor to surge to 13.5% of advances by September
2021, from 7.5% in September 2020 under the base-
line scenario. Jain said the report when it was issued
did not have the actual reported data from March
2020 due to lockdown. The forthcoming report has
access to the actual data, he said. Concerns
on inflation have flared up in the Indian economy as
it recovers from the shock of two Covid waves.
TOP

Barring a few like Essar, Banks have lost

80% dues in top NCLT resolutions
The resolution of Videocon Industries close to the
liquidation value has put the spotlight on realisa-
tions through the Insolvency and Bankruptcy Code
mechanism.
Bankers have lost over Rs 40,000 crore in
the Videocon account, as Anil Agarwal's Twin Star
snapped the company for less than Rs 3,000 crore.
In over 363 major NCLT resolutions since 2017,
banks have taken an average haircut of 80% over the
past four years, the largest among them being Dec-
can Chronicle (95%), Lanco Infra (88%), Ushdev In-
ternational (94%) and Zion Steel (99%).
While RBI has pointed to a recovery rate of 45%
in IBC so far, barring the recovery rates in the top
nine accounts, recoveries in other accounts average
24%. The top nine accounts were from the steel sec-
tor which led to good recoveries, while accounts in
the power and infrastructure sectors struggle for
buyers.
Lenders have been able eke out good recoveries
in steel sector, with the highest being in the
TOP
case of Essar Steel where lenders got 90% of

their dues.
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Regulatory system for digital banking in-

termediaries likely
India’s burgeoning digital banking ecosystem
could soon come within a more formalised regulato-
ry and supervisory mandate specified by the central
bank as the regulator looks to accommodate roles
for entities beyond conventional banks and non-
banking finance companies (NBFCs).
An internal team at the RBI is studying the scope
of various classes of digital intermediaries function-
ing at the interface of India’s technology and finan-
cial industries. It is seeking to provide definitions to
these emerging entities and listing down compliance
yardsticks, three industry sources briefed on the
matter told ET.
These entities include fintechs aspiring to be lend-
ers but don’t want to be a bank, service providers
embedded with banks, and Application Program-
ming Interface (API) banking entities, which in some
western markets are known as ‘neo banks.’ the in-
dustry sources said.
Discussions are still at an early stage and the RBI
is yet to officially set up a committee or a working
group, but senior officials within the RBI are initially
considering a ‘light-touch’ regulatory approach that
could see these emerging entities being subject to
operational guidelines. Some regulations may be
made enforceable by the licensed lenders with
whom the fintechs partner for banking services.
The RBI already has differentiated banking licenc-
es for each lending category: Universal banking,
payment banks, small-finance banks, and
TOP
NBFCs.
Indian economy turns the corner in June,

show data
The Indian economy began regaining momentum
in June, ultra-high frequency data indicate, though
subdued consumer sentiment is expected to limit
the pace of recovery in Asia’s third largest econo-
my. This comes as states gradually ease curbs on
business activity, keeping in mind the decline in the
number of fresh Covid cases.
The week ended June 13 was at least the third
consecutive week in which economic activity se-
quentially gained momentum, according to three
data trackers by research agencies using a range of
data available on daily or weekly basis.
The UBS-India Activity Indicator moved higher
for the third consecutive week ended 13 June, after
hitting a trough in the week ended May 23. This is
corroborated by the QuantEco Research’s Daily Ac-
tivity and Recovery Tracker (DART) index, which in-
dicates a fourth consecutive weekly expansion in
economic activity for the week ended June 13. The
Nomura India Business Resumption Index also
jumped in the same week, rising for the third con-
secutive week led by a strong revival in mobility in-
dicators and higher power demand, after slip.
Mobility indicators such as Google mobility indi-
ces, the Apple Driving Index, and daily railway pas-
senger revenues have all shown strong revival in
June. E-way bills and imports for the first fortnight
of June also showed strong growth, highlighting the
gradual resumption of economic activity.
TOP

RBI economists call rising inflation transi-

tory, owing to pent-up demand
India's inflation may have breached the pre-
scribed target for the Reserve Bank of India, but the
economists at the central bank believe that it may
just be transitory and is driven by release of pent-up
demand. High frequency indicators show pressures
easing, which may get support from normal mon-
soon though core inflation is at its highest since
2014. Economists at the central bank also prescribe
quantifiable metrics to bring down fiscal expendi-
ture and target them for better efficiency. These two
views emerge from the research department of the
RBI. The economy has the resilience and the funda-
mentals to bounce back from the pandemic and un-
shackle itself from pre-existing cyclical and structur-
al hindrances, RBI economists said.
Looking ahead, even as growth seems set to re-
vive contingent on continued policy support and
speedy and widespread vaccination, inflation merits
close watching. With commodity prices rising, the
uncertainty surrounding the inflation outlook, poses
risks to the recovery and spillover risks to financial
markets, warned the authors of the article, led by
deputy governor Michael D Patra.
Retail inflation, measured by the consumer price
index, jumped to 6.3% in May after easing to 4.23%
in April, primarily due to higher food and fuel prices.
CPI excluding food and fuel inflation surged to 6.6%,
the highest since May 2014. All core sub-groups reg-
istered a pick-up in inflation, with substantial in-
creases in clothing and footwear, household goods
TOP
and services, transport and communication.

15 banks are joining forces to use block-

chain to power Letters of Credit — a
move that could be a boon for MSMEs
Banks in India are coming together to use block-
chain technology to solve a central problem in tradi-
tional banking — the processing of Letters of Credit
(LCs), GST invoices, and e-way bills. India’s largest
public sector bank, the State Bank of India (SBI),
along with ICICI Bank, Kotak Mahindra, Axis Bank,
and 11 others have formed a new company called
the Indian Banks’ Blockchain Infrastructure Company
Private Limited (IBBIC) that will be at the helm of this
transformation.
Using blockchain to issue LCs would potentially
solve these issues. Even elemental fraud like the issu-
ance of two LCs on a single invoice can be easily pre-
vented with the help of this blockchain technology.
The new system is expected to go live within a year
and each bank has an equal stakeholdership of
6.66%. It’ll be designed to be open, making it seam-
less for other banks to join anytime in the future. The
technology is purely based on the concept of tokeni-
sation. This helps turn sensitive data into nonsensi-
tive data that can be leveraged by multiple parties in
a series. It also helps preserve the authenticity of da-
ta and indirectly enables digitisation.
Simply put, a basic invoice can be turned into a to-
ken, which can then be used to settle payments,
overheads, and other adjustments. For MSMEs, this
could be a game-changing innovation. Through all of
its transactions, assets, liabilities, and more, tokeni-
sation would make approvals quick, disbursements
and settlements would be instantaneous, and
TOP
the chances of fraud are minimised.

Bank staff seek job security assurance

after privatization
The proposed privatization of two state-run
lenders has cast a pall of gloom over bank employ-
ees who fear loss of jobs and pensions, with un-
ions vowing indefinite strikes to counter any ad-
verse announcement. People who joined govern-
ment-owned banks with job security in mind be-
lieve that while mergers largely did not lead to job
losses, privatization will.
Union finance minister Nirmala Sitharaman an-
nounced in the FY22 Union budget that the gov-
ernment will reduce its stake in two public sector
banks apart from IDBI Bank. To be sure, she said in
March that privatization would not hurt the inter-
ests of employees.
Though the government has not named any
bank yet for privatization, various news reports
have pointed to Central Bank of India, Indian Over-
seas Bank, and Bank of Maharashtra as likely can-
didates.
“Many employees are worried that even if there
is no direct retrenchment, there might be large
voluntary retirement schemes, pushing people to
leave," said Devidas Tuljapurkar, convener of the
United Forum of Bank Unions (UFBU), an umbrella
body of nine bank unions. Tuljapurkar believes
that attempts could also be made to outsource
several jobs, leading to retrenchment in clerical
roles. “While officers might not bear the brunt of
such measures, clerical jobs are at great risk
TOP
if privatization is implemented," he said.

Travel, tourism, retail may be the next

bad loan fronts for Indian banks
As banks were clearing off the bad assets in their
corporate loan cupboards, they may be staring at
another bout of bad loans.
This time the stress is emerging from retail loans,
which have been the banks' mainstay for the last
few years as corporate loans declined. The contact
intensive travel and aviation sectors are also likely to
give pain to banks if the Covid situation worsens.
As of April 23, 2021, banks loans to tourism, ex-
ports and restaurants stood at Rs 50,395 crore as
against Rs 47,101 crore a year earlier, a rise of 7%.
The growth rate was less than half of the 18% jump
in the previous 12 months. The total bank loans to
the aviation sector as of April 23, 2021, stood at Rs
26,309 crore, up 8.2% year on year.
There has been a "sharp decline" in collection
efficiencies in retail asset pools across asset classes
in May due to the second wave of the pandemic,
with microlenders witnessing a dip of up to 20%, a
report said on Monday. "ICRA has observed a sharp
decline in the collections of its rated securitisation
transactions in Apr’21 (i.e. May’21 payouts), follow-
ing the rise of Covid cases and imposition of lock-
downs/movement restrictions which has impacted
the operations and collection activities of the NBFCs
and HFCs," the report from domestic rating agency
ICRA said. The microfinance entities have witnessed
the highest decline in collection efficiencies,
pointing out that repayments of advances and over-
due collection were lower by 20% for April when
compared with March.
TOP

Forex has helped avert a currency run,

but continuous inflow has its risks
From a low of $275 billion in September 2013,
when the country had a run on its currency, In-
dia’s foreign exchange reserves have more than dou-
bled in the past eight years to $605 billion. Only
three countries in the world have substantially high-
er forex reserves than India – China, Japan, Switzer-
land. As on June 4, Russia’s and India’s reserves were
at almost the same level; these could swing either
way in the coming weeks and months.
Between 2014 and 2020, while India’s forex re-
serves grew in all years but one (2018), the year
2020 saw the highest build-up of reserves – almost
$128 billion, on top of $89 billion in 2019. The US
treasury department put India under its currency
manipulator watch list in Dec last year, saying India,
along with three other countries, intervened in
the foreign exchange market in a sustained and
asymmetrical manner. The rupee was the worst-
performing currency in Asia in 2020, mainly due to a
heavy intervention by RBI amid robust inflows.
So far this year, RBI’s forex kitty has swelled by
close to $20 billion. It’s true that forex reserves act a
cushion for the domestic currency against external
shocks like a war or a sudden surge in oil prices. The
present level of reserves provide an import cover for
about 15 months. At a time when the country is fac-
ing stagflation – a contraction in growth
and inflation rising, with interest rates continuing to
be benign – there was a risk of another currency cri-
sis. That did not happen because the country’s ample
forex reserves gave the central bank ammunition to
act against undue volatility in the currency market.
TOP

Asian central banks build dollar war

chests, prep for US Fed policy
Asia’s emerging economies have accumulated
their highest level of foreign-exchange reserves
since 2014, offering a powerful buffer against mar-
ket volatility if the U.S. Federal Reserve changes
course. Central bank holdings of foreign currencies
in the region’s fast-growing emerging economies hit
$5.82 trillion as of May, their highest since August
2014. When China’s cash pile is stripped out, emerg-
ing Asian central banks’ reserves stood at an all-time
high of $2.6 trillion.
While some of the gains reflect dollar weakness
and bumper exports, policy makers are deliberately
preparing their defenses, said Nicholas Mapa, an
economist with ING Groep NV in Manila. “Emerging
economies are definitely learning from the past by
war-chesting,” Mapa said. “They’re all the more
aware of the eventual reversal in monetary policy
stance of developed market central banks and the
potential repercussions that may arise from a Fed
taper or eventual rate hike.”
While the Fed is expected to maintain a dovish
outlook when it meets this week, economists say
the accelerating U.S. recovery means the bank will
need to signal a policy turn sooner than anticipated.
A signal from then-Chairman Ben Bernanke in 2013
that the Fed would begin winding down asset pur-
chases sent shockwaves through Asia, an episode
that came to be known as the “Taper Tantrum.” Any
hint of a Fed shift on tapering will quickly test de-
fenses including current-account surpluses and for-
eign-exchange holdings.
TOP

India's credit ecosystem resilient despite

Covid-19 pandemic: Experian
The second wave of Covid-19 has hit the new
sourcing of loans but India's credit ecosystem re-
mains resilient, according to credit information bu-
reau Experian. There has been gradual and steady
improvement in sourcing trends. New sourcing
crossed the pre-Covid-19 level in October 2020.
However, sourcing volumes declined from January
2021 onwards due to the second Covid-19 wave and
lockdowns being imposed.
Experian and Invest India, the national agency for
investment in the report “A Review of In-
dia’s Credit Ecosystem” said India’s consumer credit
market is projected to grow at a higher rate than
most major economies globally.
The credit portfolio has been resilient, in February
2021 and growth stood at eight per cent year-on-
year for the portfolio of key products, lower than
the 13 per cent observed for March 2020.
The pace of growth slowed down for all products,
however, with unsecured products experiencing a
faster year-on-year growth rate compared to se-
cured loans. A recovery was observed across all un-
secured credit products, it added. This will be driven
by a shift in India’s demography, a burgeoning afflu-
ent middle class ramping up private consumption, as
well as growth in rural population, all catalysed by
technology.
India’s domestic credit growth has averaged 15.1
per cent from March 2000 to March 2021, primarily
driven by retail loans and increasing penetra-
TOP
tion of credit cards.

Banks may drop overseeing panel for

quicker resolution
Banks soon won’t need to approach the oversee-
ing committee (OC) to get resolution plans for
stressed assets vetted, a measure that could shorten
the time taken for dealing with non-performing as-
sets (NPAs).
The Indian Banks’ Association (IBA) will write to
its members advising them to drop the standard
clause in the inter-creditor agreement (ICA) that
calls for this, said a senior executive aware of devel-
opments.
Banks had continued to route stressed asset reso-
lution proposals through the OC even after revised
guidelines issued by the Reserve Bank of India (RBI)
in June 2019 on ‘Prudential Framework for Resolu-
tion of Stressed Assets’ didn’t mention such a re-
quirement.
Banks feel that the OC is an additional layer which
may delay the resolution process and that, since it's
not a regulatory requirement any more, it should be
done away with.
RBI had in 2016, as part of norms for debt resolu-
tion involving large borrowers, envisaged the OC to
resolve NPAs in a transparent and prudent manner.
The OC was mandated to review the processes in-
volved in preparation of the resolution plan for rea-
sonableness and adherence to the provisions of the
RBI guidelines and give its views. The review also
provided banks comfort that their decisions would
not be questioned later by vigilance agencies, a
mechanism that was expected to speed up
TOP
stressed asset resolution.

Second COVID wave impacts bank depos-

its, currency holding with public: RBI
Bank deposits and currency holding with the pub-
lic have been adversely impacted during the second
COVID wave, indicating a heavy outgo towards pan-
demic-induced medical expenditure, an RBI article
said on Wednesday. Bank deposits -- having a share
of around 55% in total assets of households -- decel-
erated by 0.1% at end-April 2021 on a m-o-m
(month-on-month) basis as against a growth of 1.1%
in April 2020.
The rate of decline in bank deposits vis-a-vis bank
credit has also been higher, indicating that this time
around the banking sector component of household
savings declined. This is in sharp contrast with the
spike in savings witnessed during the first wave, the
article, published in RBI's monthly bulletin, said.
"Currency holding with the public has also decel-
erated significantly to 1.7% during April 2021 in
comparison to the growth of 3.5% a year ago, imply-
ing heavy outgo towards COVID-induced medical ex-
penditure," it noted. Amidst high uncertainty with
respect to income, the article said precautionary
savings tend to rise with decline in discretionary
spending, as reflected in the private final consump-
tion expenditure data on India during the pandemic
period. According to preliminary estimates by RBI,
the household financial savings in Q3:2020-21 have
come down to 8.2% of GDP from 21% and 10.4% in
the previous two quarters. The savings of High Net-
worth Individuals (HNIs) and retail individuals in liq-
uid funds surged sharply in Q1:2020-21, mirroring
the impact of uncertainty amidst COVID.
TOP

New auditors: RBI clarifies on tenure, eli-

gibility norms
Amidst both support to as well as calls for a re-
view of its new norms for appointing auditors by fi-
nancial institutions, the Reserve Bank has stuck to
its stance but has clarified certain doubts in the in-
dustry on the tenure and eligibility criteria among
others. The central bank on April 27, 2021, had is-
sued a circular on 'Guidelines for appointment of
statutory central auditors (SCAs)/statutory auditors
(SAs) of commercial banks (excluding RRBs), UCBs
and NBFCs (including HFCs)'. While the circular has
been lapped by domestic audit firms, including their
apex regulatory body ICAI, industry lobbies have
called for a review saying it will increase cost and al-
so doubting the ability of domestic audit firms to
handle large accounts. Significantly, the big four--
KPMG, Deloitte, EY and PwC which are all foreign
entities--have been conspicuously silent so far, in
spite of the fact that the new norms will hit their
business hard.
The RBI has reiterated that the April 27 circular
was issued "with the basic objectives of putting in
place ownership-neutral regulatory norms, ensuring
independence of auditors, avoiding conflict of inter-
est in their appointments, and to improve the over-
all quality and standards of audit in RBI-regulated
entities. "These guidelines will also help streamline
the procedures to appoint statutory auditors across
all its regulated entities and also ensure that ap-
pointments are made in a timely, transparent and
effective manner," the central bank has reiterated in
its clarifications, issued over the weekend, as FAQs.
TOP

NEWS IN BRIEF
CPI soars to six-month high; WPI also hits
record peak
Retail inflation hardened to a six-month high in
May, joining the rising trend in wholesale inflation
that also strengthened to a record, but experts
said RBI may tolerate these levels for a while given
concerns over growth. Retail inflation, as meas-
ured by the consumer price index (CPI), accelerat-
ed to 6.3% in May from 4.23% in April, breaching
the upper band of the RBI's 2-6% range for the first
time in six months, data from the statistics office
showed. TOP
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NEWS IN BRIEF-2
ICICI Bank unveils digital offering for cor-

porates
ICICI Bank has unveiled ‘ICICI Stack for Corporates’,
a set of digital banking solutions for corporates
and their entire ecosystem including promoters,
group companies, employees, dealers, vendors
and all other stakeholders. These solutions will en-
able corporates to seamlessly meet all banking re-
quirements of their ecosystem in an expeditious
and frictionless manner, the bank said. Through
this the bank will provide customised digital bank-
ing services to companies in over 15 leading indus-
tries such as financial services, IT/ITES, etc.
HDFC Bank says working with RBI for re-

starting banned services
HDFC Bank on Thursday said network outag-
es that led to a regulatory ban on new credit
card sales were not due to transaction volumes
and affirmed that it continues to stay in touch
with the RBI for restarting the services but giving
a timeline for it will be difficult. The bank said it
is on its way to creating a new technology archi-
tecture for the future as part of the "digital fac-
tory" and "enterprise factory" initiatives. But, it
conceded that outages will continue under the
older system though it will be working to mini-
mise the time taken to bring the service back. In
Dec’20, the RBI took the unprecedented step of
stopping the largest private sector lender from
selling any new credit cards and also
TOP
launching new digital services.

NEWS IN BRIEF-3
IndusInd Bank rolls out digital lending
platform 'IndusEasyCredit'
IndusInd Bank today, launched the
‘IndusEasyCredit’, a fully digital end to end
platform leveraging India’s public digital infrastruc-
ture- ‘Indiastack’ to offer personal loans and credit
cards in a paperless and cashless manner. The
stack leverages more than 35 interfaces to digitally
verify KYC and employment information as well as
analyse bank statements. It then uses advanced
analytics and machine learning based models to
assess eligibility in real time. Post this,
the customer can conduct Video KYC and get the
loan disbursed into his or her account after exe-
cuting the agreement digitally.
Bottomline back in black, IOB wants to be

out of PCA
With its bottom-line back in black after a long
time, IOB has approached RBI seeking it be taken
out of the Prompt Corrective Action (PCA) fold, a
top official said. Managing Director & CEO Partha
Pratim Sengupta also said that the IOB plans to
raise additional funds of about Rs 2,000 crore from
a follow-on equity issue and Rs 1,000 crore by is-
sue of bonds. Addressing reporters, Sengupta said
the bank has approached the RBI to be taken out
of PCA as its financial metrics have turned good.
The bank also said it plans to come out of PCA by
focusing on loan recovery, low cost deposits and
less capital consuming advances. The bank closed
last fiscal with a net profit of Rs 831 crore as
TOP
against a net loss of about Rs 8,527 crore.

COVER STORY
Can Banks Survive Fifty Years?

Banking has been an
integral part of life. As em-
pires expanded, the concept
of ‘Collection Centres’ evolved
to collect taxes and distribute
wealth.Coins of precious gold
and silver were issued. The Hargovind Sachdev
temples were the earliest banks as the same
were headed by Priests ,whom king and the
commoner, trusted alike as embodiment of
honesty, integrity, trust and truthfulness. Lack
of steel safes and residential security , forced
people to keep coins in the temple basements.
At the instructions of coin owners, the priests
started circulating coins to the needy people on
loan and collected back with interest in the
shape of larger number of coins. This saga of
operations through a third party trust gave
birth to banking.
Initially the banking was very fragile. The
kings and the mighty frequently took away the
savings of people from priests to utilise in aspi-
rational wars and ostentatious constructions of
forts and rarely returned the funds back. This
lead to search for a legal umbrella to fix an-
swerability and sanctity to banking.

Banks came and vanished since Roman Em-

pire in Europe. The earliest functional legal
edifice to envelope the banking system in its
protection and work as a transparent financial
watchdog, shaped in 1907 with the setting up
of the Federal Re-
A world without banks
serve in the USA. is inconceivable because
Then the US was they are so visible. …….
richest nation hold-
Ironically , the reality is
ing 75% of world’s
very distant from the
gold.
perception of reflected
The Federal Re- grand stature of Banks
serve established worldwide. Banks today
deposit Insurance are more fragile than
to instil confidence ever before slipping on a
against bank fail- quarter to quarter basis
after the imple-
ures from frequent
mentation of Basel III
dacoities which
accord and imposition of
emptied banks to
90 day norm for asset
the brink of failure. classification. The banks
With World War 2, are not able to maintain
the busy US facto- a pure equity as
ries grew in size and replacement fund for
consumed large risk weighted loans.
scale of finance
from banks to meet enhanced de-
mands.Loans were repaid with interest as per
sanction terms stabilising the system of recy-
cling of funds. This reverberated into a big
blast growth for the banks which became

trusted destination points for depositors and
borrowers across world. The banking industry
has not looked back thereafter.
A world without banks is inconceivable be-
cause they are so visible. A walk down the
majestic Mainzer Landstrasse , the banking
street of Frankfurt, with imposing tall build-
ings carrying name plates of 136 banks or a
stride around the BKC and Nariman Point
banking lanes of Mumbai gives an impression
of omnipresence of banks.Their elated poise
in towers reflects aura and invincibility. Many
aspiring economists dream to work as bank-
ers.
Ironically , the reality is very distant from
the perception of reflected grand stature of
Banks worldwide. Banks today are more frag-
ile than ever before slipping on a quarter to
quarter basis after the implementation of Ba-
sel III accord and imposition of 90 day norm
for asset classification. The banks are not able
to maintain a pure equity as replacement
fund for risk weighted loans. Similarly if the
loan is not serviced by the borrower in 90
days, banks are unable to write-off a portion
of loan due to low profits in the P&L account
towards provision.

State owned banks have been booking loss-

es quarter on quarter and writing off the
same by debiting their share premium ac-
count. Most of the Indian banks in private and
pubic sector have failed in their business
model. Due to fear of default, a policy pro-
crastination has set in acute escalation of cost
of operations as overheads are heading north-
wards. Bankers are contented to subsist on
3.35% interest income out of reverse repo op-
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erations by investing funds in RBI rather than

lending to public.
Government has permitted 100% Foreign
Direct Investment in NBFC sector as com-
pared to 74% in Banks, resulting in neutralis-
ing the advantage of cheaper liquidity of CASA
enjoyed by banks.
Pensioners are shifting funds to high yield-
ing NBFC products, stock market, gold and re-
al estate.High inflation has confirmed the
fears of zero or negative interest income on
deposits a reality, leaving interest surviving
senior citizens wondering, the utility of banks
in their lives.
The lucrative business of remittances has
been taken away by the payment intermediar-
ies like Paytm and Google Pay, leaving a big
hole on the P&L of banks under the non inter-
est income as well. Leading NBFCs are ahead
of banks in channel financing and bill dis-
counting on domestic and export front on e-
trading platforms disbursing loans within
minutes of uploading the invoice by Corpo-
rates.
A cheaper alternate white label ATM mar-
ket owned by private sector, has brought
down the Bank income from ATMs and made
their expansion unviable. Number of ATMs is
coming down.
Rating Agencies have replaced banks in as-
certaining net worth of borrowers. Banks de-
pend on external rating for all loans above Rs.5
crore, ignoring their internal credit rating sys-
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tem which is reduced to a mere pricing tool for

loans. Overt use of CRISIL rating by banks has
chased out cash spinning MSME who are flock-
ing to NBFCs generating remunerative non
fund based income as well.
Grey market price of single share of payment
intermediary Paytm is Rs.22000,SBI Rs.430 and
Blue chips HDFC, Axis and ICICI around
Rs.3000, revealing disenchantment with slug-
gish performance and bleak long term viability
of banks.
The colossus write-offs of impaired assets has
been passed on to depositors through low in-
terest rates who cross subsidise bank losses by
paying charges for ledger folios, cash counting ,
cheque books, ATM transactions and account
statements.
Banks incentivise Recovery Agents abdicating
laws of persuasive debt monitoring. People
wonder whether bankers are only competent to
lend. Banks are mobilising deposit and loan ac-
counts through agents and do co-lending where
loan is given by a bank in alliance with external
agency that performs due-diligence and fol-
lowup on a profit sharing basis. The decimated
role of bankers in various facets of banking is of
their own making.
On top of the above surrender of banking ac-
tivities , the worst is high susceptibility to
frauds due to callousness , impacting safety
and morale of stake holders. Bankers are clue-
less in controlling safety standards of their de-
liverables which fail to safeguard and mitigate
day-to-day operational risks.The hastily innovat-
ed internet banking continues to heap miseries
from hackers. The banks have become a soft
target for fraudsters and with deposit insurance
cover being low, are not first priority for in-

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Given the scenario, banking is losing sheen
and yielding space to non banking players. It
appears headed towards catastrophe. Agile al-
ternate players are targeting its CASA by selling
the concept of zero interest pre-funded wallets
for online payments. Fintech agencies have also
commenced paying loan EMIs, LIC premium,
utility bills, children fee and credit cards
through wallets which do not carry any SLR or
CRR compliances and costs. Once further CASA
is lost, Banks will lose deep pockets forfeiting
lending margins.
It is time to standup and vindicate the trust
by stretching fully to save public from clutches
of smart, risky and unsafe competition. Let
Bankers empathise, strategise, arise & awake.
Let the operational efficiencies create pull val-
ues to bring customers back laughing to the
bank and make the towers taller. Otherwise,
the skyscrapers across the world would become
banking museums in the next fifty years.
“People no longer accept the things they
can’t change, they change the things, they can’t
accept.”
The Author Shri Hargovind Sachdev retired from State
Bank of India as General Manager. He headed
TOP
Central European Credit Desk of State Bank of

India, Frankfurt, Germany
WEEKLY QUIZ
Uniform Rules for Collection – Interna-

tional chamber of commerce publication
522 [URC-522]
1. From which date URC-522
came into effect?
A.1st January 1996
B.1st January 1979
C.1956 NK Jayaraman
D.1967
E.2019
2. How many “Articles”, are there in URC-522?

A.39
B.26
C.35
D.11
E.None of the above.
3. For whom the rules in URC 522 are applica-

ble?
A. Collections handled through banks
B. Export collections handled through
banks
C. Import collections handled through
banks
D. Documentary collections, import, export
handled through banks

E. All collections as defined in Article 2 of

URC where such rules are incorporated
into the text of the "collection instruc-
tion" referred to in Article 4 and are bind-
ing on all parties thereto unless other-
wise expressly agreed or contrary to the
provisions of a national, state or local law
and/or regulation which cannot be de-
parted from.
4. If any “inerest” is to be collected from draw-
ee by collecting bank/presenting bank,
what are the instructions to be given in the
covering schedule?
A. Interest to be collected, if applicable, in-
dicating whether it may be waived or not
B. rate of interest
C. interest period
D. basis of calculation (for example 360 or
365 days in a year) as applicable.
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E. All the above

5. As per URC 522, if in a documentary collec-
tion Bills of Exchanges are included which
are to be stamped as per the Stamp Act of
the country of residence of drawee, who has
to bear the stamp duty charges?
A. Drawee
B. Presenting bank
C. Collecting bank
D. Remitting bank
E. Principal
6. What are the disclaimers under URC?
A. ARTICLE 10 DOCUMENTS vs. GOODS, SER-
VICES, PERFORMANCES
B. ARTICLE 11 DISCLAIMER FOR ACTS OF AN
INSTRUCTED PARTY
C. ARTICLE 12 DISCLAIMER ON DOCUMENTS
RECEIVED
D. ARTICLE 13 DISCLAIMER ON EFFECTIVE-
NESS OF DOCUMENTS
E. ARTICLE 14 DISCLAIMER ON DELAYS, LOSS
IN TRANSIT AND TRANSLATION
F. All the above
7. As per FORCE MAJEURE clause Banks as-
sume no liability or responsibility for conse-
quences arising out of the interruption of
their business by:
A. Acts of God
B. riots

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C. civil commotions
D. insurrections
E. wars
F. any other causes beyond their control
G. strikes or lockouts.
H. all the above
I. only A to G
8. Can partial payments be accepted in a docu-
mentary collection?
A.No
B. Yes
C. As per instructions of remitting bank
D.If no instruction is given only on full pay-
ment of collection, commercial documents
will be released
E. Yes , if specifically instructed by remitting
bank. {also to follow the rules in Articles
16,17 and 18 as applicable}
9. Who is a “Drawee in case of need”?
A. An alternate buyer if original buyer re-
fuses to take up documents
B. An entity which may facilitate the ac-
ceptance/payment of the collection
C. An entity to whom bill has to be present-
ed if not taken up by original drawee , be-
fore noting/protesting
D. He is an agent of seller in buyers country
who helps in persuading the drawee to
accept/pay the bill

E. There is no such concept in international

trade.
10. The “Presenting Bank” has to give advice
of non acceptance/non payment to re-
mitting bank as soon as the bill is dishon-
ored for non acceptance or non payment
and seek instructions for further handling
of the bill. On receipt of such advice, re-
mitting bank to contact principal and give
fresh instructions to presenting bank. Sup-
pose no instruction is received from re-
mitting bank how long the presenting bank
need to hold the bill with them as per URC?
A. Return the unaccepted/unpaid bill imme-
diately to remitting bank
B. Hold the bill indefinitely till instructions
are received from remitting bank
C. Return the bill if no instructions are re-
ceived from remitting bank within 30
days
D. Return the bill if no instructions are re-
ceived from remitting bank within 60
days
E. URC – 522 is silent on this matter.
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TOP

JAIIB TOPIC
SECURITY CONSIDERATIONS
Risk Concern Areas, Types of Threats and Control
Mechanism.
Security of data, funds of the

customer, particulars and de-
tails about a customer are of
utmost importance both for
the banks and the customers.
The banks function on the basis NPS Sohal
of trust reposed by their customers. This is more

important for the banks operating in the rural ar-
eas where the customers repose lot more faith
on the banks.
The customers are more illiterate and simple.
They put their all faith, money and details into
the bank. Thus it becomes foremost duty of the
banks to take care and ensure complete security
and safety.
The banking sector has always been vulnera-
ble to risks, errors and frauds. One can not ex-
actly be sure if the same have increased with in-
troduction of technology or not. But one thing is
sure that the manner of risks and frauds has
gone a sea change. The successful management
of computer and telecommunication risks re-
quires the employment of an effective system of
controls within the banking system.
We may discuss in detail the risks and the
ways to control the same.

RISK CONCERN AREAS:
The risks associated in use of IT and the defi-
ciencies in security and controls within the bank-
ing procedures can any time pose a great threat
to the banking operations. Apart from a great
loss in the reputation the banks also suffer finan-
cially in case of frauds.
A computerised environment constitutes of
three interdependent but separate components
viz.
—software
—data and
—hardware.
All the three components are continuously
exposed to computer operators, programmers,
customers and to the public as well. The nature
of financial transactions is such that banking op-
erations can become vulnerable to the risks of
errors, omissions and frauds. It is worth men-
tioning that these risks are not only confined to
banks but to all the business activities. These
risks broadly lead to:
—incorrect decision making leading to a set-
back to business.
—interruption in activities, due to loss of data,
hardware, software, people ware.
—violation of rivalry.
—direct financial loss due to computer frauds.

We go to discuss the major components to en-
able the readers to take special care:
Data and Software: Data forms the basics for
all the operations. It is a critical resource and is
necessary for working for any organisation.
Incorrect data can hamper the working. It is
really very essential to have and maintain cor-
rect data. Wrong data can lead to wrong conclu-
sions and wrong results. Simple example is of
wrong calculation of payments made to the oth-
er party, wrong calculation of interest payable or
receivable etc.
Similarly preservation of correct data is also
very important.
Good control is also required on the data. Lack
of control on data may enable unscrupulous per-
sons to have access and play frauds. The simple
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example is of sharing the password enabling the

fraudsters to play frauds.
The data is mostly stored on magnetic media
and as such it is not easy to detect any tamper-
ing easily.
In case the data falls into wrong hands and the
necessary information are leaked then it can cer-
tainly damage the relations with the customers
and making the bank liable for the damages. The
secrecy and privacy of the data and the infor-
mation are very important. Instances have come
to notice in the case of cheques being returned
unpaid for want of funds; the payee coming to
know of the balance difference, depositing the
amount and getting the cheque honoured. Such-
like instances can bring wrath of the customers.
The customer may have intentionally kept the
balance insufficient to dishonour the cheque.
Similarly it is also observed that the bankers
should also ensure not to divulge the balance in
the accounts of the husband to the wife even! In
case the spouse insists the bank should request
them to bring in the passbook and get the same
updated.
Bankers are most of the times held in a knife
edge problem. They cannot offend the customer
also; and also can not divulge much beyond the
permissible limits. They have to deal with such
situations tactfully. The old adage “Customer is

always right” holds good forever. Bankers can

never afford to offend a customer.
The software also needs to be under complete
control and care always. Any alteration in the
same can lead to big frauds. Since there is no
handwriting element involved it becomes very
difficult to know who has played the fraud! The
errors due to modifications in software cannot be
detected easily.
Infrastructure: Banks have to invest heavily for
implementing technology, using the hardware,
buying the software, maintaining the hardware,
repairs and maintenance of the hardware, re-
placing the parts etc. There were times when it
used to take quite a good time to obtain sanc-
tions for an typewriter even. But with the pas-
sage of time and the introduction of technology,
things seem to have changed a lot. Costly hard-
ware like computers, printers, pass book printing
machines, ATMs etc. are being purchased within
no time. The following are the major compo-
nents of infrastructure in a computerised envi-
ronment:
Computer Hardware: These include computer
servers, terminals/work stations, disk/tape/
cartridge drives, printers, controllers, modems,
switches/multiplexes etc.
Power Supply Equipment: These consist of un-
interrupted power supply units (UPS), constant

voltage stabilizer (CVT), generators etc.

Computer Site: It includes computer furniture,
fire extinguishers, smoke detectors etc.
The above described paraphernalia needs to
be always well maintained in order to obtain 24 x
7 services. This all entails expenditure.
Peopleware: It consists of trained profession-
als to handle the computer systems. It refers to
the people directly and indirectly involved in es-
tablishing and running computerised systems.
The banks are exposed to the following risks in
regard to the peopleware:
—stagnation in knowledge and skill levels
affecting the efficiency of the new systems.
—high turnover due to more of salary and job
mismatch and better options available. The
staff on attaining some experience and brand
name attached are able to shift to new
better places. Apart from salary increases
people prefer to shift due to better places of
posting and designation as well. In such like
cases the parent banks find difficult to find
replacements resulting into the work being
hampered.
DIFFERENT TYPES OF THREATS:
There are quite a many threats which result in-
to business interruptions. We may describe the
same as under:

—errors and omissions in data and software,

—unauthorised disclosure of confidential in-
formation,
—computer abuse and misutilisation of banks
assets,
—frauds.
The threats may occur unintentionally or even
intentionally.
Intentional threats are like playing a fraud and
are more serious in nature and harmful.
Accidental Damages: Computers and commu-
nication systems though are being extensively
used in all the sectors of the economy including
the banks but there exist risks of links being cut
off, damages occurring etc. There are good
chances of the same being damaged and going
out of order. It is often observed that the servers
stop working due to mechanical problems or due
to overloading. The servers are often seen
getting slow during the peak hours.
The same can also be damaged and go out of
order due to human error, natural calamities or
usual wear and tear. We may discuss the same as
under:
Environmental Hazards: These are the most
common causes of accidental damage. Following
are believed and observed to be major causes:
—fire forms one of the foremost common rea-
sons. It causes complete or partial destruc-

tion of the complete computer installations.
—unstabilised power causes extensive damage
to to the sensitive electronic components.
—spikes in power and improper grounding like
earthing causes immediate stoppage of the
system.
—excessive humidity, water seepage and
floods also make the computer systems to
come to stand still.
—radio transmissions also affect data trans-
missions.
Human Errors and Omissions: These errors
can effect the customer service adversely. It re-
flects poor control of the management also.
These errors can occur at the time of:
• systems design and process development,
• maintaining the programmes,
• while carrying out correction procedures
and measures,
• data entry at the time of terminal opera-
tions.
It is observed that the new errors may creep in
while rectifying the existing errors. Quite often
the systems are required to be altered as per the
requirements of the new user. There are are
good chances of errors creeping in at this mo-
ment. Thus excellent controls are needed. Good
methods to counter check the errors are desired.

Unreliable Systems: In the present days of fast
technological developments, the expectations of
the customers are also on the increase. As such
the banks also need to be always on toes and de-
vote good time to plan for the future to out do
the competitors. The customers are quite choosy
and take no time to shift to other banks. It is ob-
served that the new generation customers are
less loyal.
The systems developed should be fool proof.
One should not be able to play a fraud so easily.
It is often wrongly believed that computers can
do everything of their own. But sometimes there
are fraudsters too to use them for their own fa-
vours. It is further not easy to determine as to
who has played the fraud especially in a multi
programming or multi user environment.
Malicious Damages: The systems may be dam-
aged by dissatisfied staff, scrupulous staff who
desire to disrupt the working. Such risks are
more from the staff who are well trained and are
IT professionals. As such there are always utter
requirements to have control over them.
The usual remedies are job rotations and fol-
lowing up all the procedures as laid down by the
bank. Bye passing the procedures can certainly
lead to frauds. Short cuts should never be fol-
lowed. Pass words should also never be shared at

all. The old adage “Haste makes Waste” holds

true in banking as well.
Special programmes like utility programmes
can be applied to make unauthorised changes to
computerised records in a way that bye-pass the
normal control and audit trail facilities built into
the computer system.
Interruption in Services: The interruption in
services effects not only the working but reputa-
tion as well. The times have much changed. The
introduction of technology has given birth to the
staff who has started unlearning the manual
working. Banks can not remain closed even for a
few hours. Strong back ups are required. Fearing
the losses due to fire etc., it was made mandato-
ry by the banks to keep the duplicate records in
the nearby branches. But with change in times
and technology the data is well stored and pre-
served at the servers placed at the central com-
puter centres. The systems can come to stand
still due to overloading as well. Thus the system
should be set up looking into the present and fu-
ture expected workloads.
Frauds: There are several ways to play the
frauds. We may describe the same as under:
—introduction of special utility programmes
may be resorted to in order to bye-pass the
original normal systems/facilities already
built in the systems.

—the files may be manipulated at leisure after

shifting to another system and placed back.
This is possible with the misuse of password
by a fraudster.
—the manipulations may be done with back
up files and then replace the original ones
with the altered back-up files. This is done
after corrupting the original files.
—unauthorised amendments may be made to
the payment instructions prior to their entry
into the system.
—unauthorised changes may be made at the
time of usual maintenance so as to generate
fraudulent transactions.
—in net worked systems, amendments may be
made in transactions by intercepting them
during transmissions.
In nut shell we may say that the frauds take
place mostly due to:
—over dependence on technology which has
now become quite inevitable.
—sharing of password due to some unavoida-
ble reasons and then not changing the same.
The pass word divulged is used to make
fraudulent entries. Best is to never share the
password and if at all shared change to a
fresh one immediately.
—over dependence/reliance on a particular

person resulting into a free hand to him.

Thus job rotation is a must. No body is indis-
pensable. The management should never fail
in performing its duties!
—the outputs generated should be checked on
daily basis.
CONTROL MECHANISM: In light of the above
discussions it is well inferred that good controls
are much need to prevent the damages, errors
and frauds.
The old adage “Prevention is better than Cure”
holds good in case of the technology develop-
ment and implementation. Effective control sys-
tems are required for successful management of
risks associated with the use of IT tools. Preven-
tive controls stop errors or irregularities from oc-
curring; for example, good form design/screen
layouts reduce the likelihood of making an error
while coding data or entering data from the
source document. Detective controls identify er-
rors and irregularities after they occur e.g. an in-
put validation programme identifies data beyond
the permissible limit.
Corrective controls remove or reduce the
effects of errors and irregularities after they have
been identified e.g. communications software
may request the data to be retransmitted if it has
been corrupted during transmission. In fact, the
objective of applying these controls remains to

first prevent from happening/occurring. Secondly

the main aim is to detect the same at the earliest
possible after their occurrence. It is important to
add that it is observed that controls fail to con-
trol the frauds and the errors completely. They
are not cent percent foolproof. We may discuss
the same as under:
Physical Controls: These consist of restricting
the entry of the unauthorised persons into the
computer system. Unauthorised persons should
not have entry into the control systems. Only au-
thorised persons be permitted entry and access
to the computer media, documentation and oth-
er computer components. Maintenance of all the
components also to be entrusted to authorised
persons with good backgrounds and credentials.
PINs and biometric identifcations form good con-
trols. Access log i.e. the list of persons using the
systems to be well maintained.
Hard copies of the records also to well main-
tained and preserved. Physical also be well pre-
served against fire, seepage etc.
Internal Controls: These are of utmost im-
portance. These may vary from bank to bank, or-
ganisation to organisation. These are important
in the sense that each bank has own different
style of working and use different set of pro-
grammes and languages. The banks are required
to maintain operational efficiency, keep safe their

assets and use the system having internal con-

trols. The banks need to employ such controls
which are in consonance with banking proce-
dures and managerial policies. Primarily there
are two types of internal controls viz.
—accounting controls and
—administrative controls.
The accounting controls are introduced in the
application software and are in the form of:
—dual controls and authorizations
—validation checks on data
—numerical sequencing etc.
Administrative controls are based on the well
defined lines of responsibility, formal policies and
procedures.
Some of the other controls applicable to cus-
tomer accounting are:
—validation of each transaction against limits
and balances and its authorization before
effecting it.
—validations on stop payments, post dated
cheques, stale cheques and cheques with in-
valid dates.
—verification of sensitive parameters such as
due dates, maximum/minimum days al-
lowed, maximum/minimum rates, drawing
limits, stop instructions etc. before feeding
into the system.
Operational Controls: These controls are em-

bedded in software, whereas access controls may
be enforced by both the system software as well
as application software at different levels. These
are provided in the application software to en-
sure
—data integrity,
—consistency and
—processing.
The details of day to day working are well con-
trolled and preserved so as to check the past
transactions for audit purposes and also to check
if any wrongful or fraudulent entries have been
passed. These are classified as Accounting Audit
Trails and Operational Audit Trails.
The audit trails contain all the details of the
transactions made, transactions attempted, both
successful and unsuccessful transactions, IDs
used, time and date of the transactions made.
The transactions are numbered and are in serial
order.
TOP
Shri NPS Sohal is a Retired AGM from Union Bank of India and
has written Books for JAIIB, CAIIB and for Promotion Exams in
Banks. He is author of Principles & Practices of Banking pub-
lished by BANKERS HELPLINE.

Answers to Weekly Quiz
1. A
The ICC Uniform Rules for Collections were
first published by the ICC in 1956. Revised
versions were issued in 1967 and 1978. This
present revision was adopted by the Council
of the ICC in June 1995, for issue as ICC Publi-
cation N°522.
2. B UCP 600 contains 39 articles. URDG has
35 articles. INCOTERMS has 11 defined inco-
terms.
3. E
Normally these rules are applicable to Banks
involved in the collection process, whether,
import, export, or clean collection [provided
the ‘notation’ “subject to URC-522” is incor-
porated in the covering schedule. ] Hence,
while handling collection bills this clause has
to be necessarily incorporated by banks, es-
pecially in export collections, so that any gap
is found in the instructions given will be re-
solved by the collecting bank, in the common
interest of principal, remitting bank, col-
lecting bank , presenting bank and drawee
etc.
4. E
There should be total clarity as given. Other-
wise whatever interest collect collected by
collecting/presenting bank will have to be ac-
cepted without further questions. Here one

very important point is regarding waiver of
interest by collecting/presenting bank. The
principal (the party who instructs the re-
mitting bank to collect the bill) must be
properly educated about this aspect. If no
specific instruction is given regarding waiver,
the collecting bank/presenting bank will de-
mand interest, but if drawee refuses to pay,
will collect only the principal amount and ig-
nore the interest portion. On the other hand
if instruction like “do not waive interest” is
given, the collecting bank will not part with
the commercial documents to drawee till the
issue of interest is resolved and interim, if
there is a delay in getting instructions from
Principal through remitting bank, demurrag-
es may accrue if goods already arrived, if air
cargo if not cleared in time removal from the
airport area and auctioning of goods etc in
sea ports if port congestion or contamination
anticipated or even abandoning the goods.
So instruction for Not waiving must be well
thought over and Principal must keep draw-
ee well informed about consequences. Same
thing applies to bank charges if “Do not
waive” instructions are given.
5. D or E [only in direct bills exporters send the
bills directly to importers’ bank to avoid
some bank charges]
Article 5. c reads as follows: [c Documents
are to be presented to the drawee in the

form in which they are received, except that
banks are authorised to affix any necessary
stamps, at the expense of the party from
whom they received the collection unless
otherwise instructed, and to make any nec-
essary endorsements or place any rubber
stamps or other identifying marks or symbols
customary to or required for the collection
operation.]
So the point to be noted. In India, stamping
for import collection is only for bills having
usance of over 90 days [up to 90 days no
stamp]. But in many countries, all the bills
are to be stamped irrespective of usanace
and stamp duty will be very heavy. Alterna-
tives are send only commercial documents
for collection so no bill of exchange. But bill
of exchange is must as per the importer’s
country regulations, the covering schedule
can clarify that the drawee has to bear such
stamp duty. Remitting banks to take care of
this scenario and advise their principal also.
Principals if they are cost conscious may in-
clude the stamp duty in the price if to be
born by principals.
6. F
Readers may go through these from the URC
522.
7. H
In UCP 600 force majeure covers Acts of God,
riots, civil commotions, insurrections, wars,

acts of terrorism, or by any strikes or lockouts
or any other causes beyond its control. In the
definition of URC 522 “Acts of Terrorism” is
not separately mentioned. However, we may
presume that such happenings can be
clubbed in “any other causes beyond their
control”. Insurrection means “violent upris-
ing against an authority or government”.
8. E
[In respect of documentary collections, par-
tial payments will only be accepted if specifi-
cally authorised in the collection instruction.
However, unless otherwise instructed, the
presenting bank will release the documents
to the drawee only after full payment has
been received, and the presenting bank will
not be responsible for any consequences aris-
ing out of any delay in the delivery of docu-
ments.] Article 19 of URC 522 covers these
aspects.
Many a time drawees request bankers to ac-
cept some payment (or maximum payment
and not full payment) and seek release of
commercial documents. Collecting bank/
presenting bank should not yield to such re-
quests. As a customer service measure, they
may refer the request to remitting bank and
follow the instructions given by remitting
bank only.
9. D
ARTICLE 25 of URC 522 states:- CASE-OF-

NEED If the principal nominates a representa-
tive to act as case-of-need in the event of
non-payment and/or non-acceptance the col-
lection instruction should clearly and fully in-
dicate the powers of such case-of-need. In
the absence of such indication banks will not
accept any instructions from the case-of-
need.
A very important point to be noted here is,
the Bill of exchange will show the name of
Drawee in case of need apart from the origi-
nal drawee for bill of exchange.
While forwarding such bill of exchange for
collection, in the instruction schedule, re-
mitting bank must clearly state what are the
courses to be followed by collecting bank/
presenting bank like:-
i. Seek help of case of need in case of non ac-
ceptance
ii. Seek help of case of need in case of non
payment
iii.Refer case of need if interest/charges etc
are disputed
iv.Seek help of case of need in finding alter-
nate buyers
v. Or even present the bill to case of need for
acceptance/payment Etc.
Therefore, if CASE OF NEED has to be effec-
tive, proper instructions have to be taken

from Principal/drawer and incorporated in

the covering schedule of Remitting bank
while forwarding documents to collecting
bank/presenting bank.
10. D
As per last part of Article 26.c.3 [ On re-
ceipt of such advice the remitting bank must
give appropriate instructions as to the further
handling of the documents. If such instruc-
tions are not received by the presenting bank
within 60 days after its advice of non-
payment and/or non-acceptance, the docu-
ments may be returned to the bank from
which the collection instruction was received
without any further responsibility on the part
of the presenting bank.]
Important point to be remembered is Bank
charges may be claimed from remitting bank.
Because the collection itself is not paid by
drawee, so he will not pay charges. Banks,
internationally, honour charges claims
without any dispute to keep good rela-
TOP
tions with each other.

Mr N. K. Jayaraman, retired from Union Bank of India as
Chief Manager having 38 years experience in banking
with specialisation in foreign exchange. He is author of
Quiz in Banking published by BANKERS’ HELPLINE. Read-
ers may raise any situational issues where help is needed
with him without quoting Bank / branch name or custom-
er's name. We shall endeavour to give tangible solutions
without any engagement or responsibility on the part of
Bankers’ weekly or author

Links to selected Articles on

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