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GNDU Question Paper-2022
Bachelor of Business Administration
BBA 5
th
Semester
MANAGEMENT OF BANKING OPERATIONS
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. What are the instruments of Monetary policy? Critically evaluate current monetary
policy of India.
2. What is Negotiable Instruments Act, 1881 ? Explain its features and types.
SECTION-B
3. What is bank lending? Discuss in detail the significance of bank lending with special
reference to India.
4. Write notes on the following:
(i) Risk Management in Indian Banking Sector
(ii) Importance of BASEL norms.
SECTION-C
5. What is eCRM in banking? Discuss recent trend of e-CRM in Commercial Banks in India.
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6. Write notes on the following:
(a) Objectives of KYC Guidelines
(b) Money Laundering
SECTION-D
7. What is the purpose of the corporate governance ? How does RBI contribute to
corporate governance?
8. What are the various fee based innovative services provided by banks in the current
Indian banking system ?
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GNDU Answer Paper-2022
Bachelor of Business Administration
BBA 5
th
Semester
MANAGEMENT OF BANKING OPERATIONS
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. What are the instruments of Monetary policy? Critically evaluate current monetary
policy of India.
Ans: A rainy morning, a radio, and the RBI’s invisible hand
Picture this: rain drumming on your window, chai steaming in your cup, and the morning
radio saying, “RBI keeps rates unchanged.” To most people, that’s background noise. But
inside that quiet line is the story of how a central bank “tunes” the entire economy—like a
sound engineer balancing bass and treble so the music feels just right. Those knobs and
sliders? They’re the instruments of monetary policy. And how India is turning them today is
worth understanding—and questioning.
Instruments of monetary policy
At its core, monetary policy uses a mix of price tools, quantity tools, market operations,
guidance, and moral persuasion to influence money, credit, and expectations.
• Policy rate corridor (the price of money)
o The RBI’s key lever is the repo rate—the interest at which it lends to banks. It
sits inside a corridor bounded by the Standing Deposit Facility (SDF) at the
floor and the Marginal Standing Facility (MSF)/Bank Rate at the ceiling.
Moving this rate nudges borrowing costs for homes, cars, and businesses.
• Liquidity Adjustment Facility (LAF) operations
o Through daily and variable-rate repo/reverse repo auctions, the RBI injects or
absorbs liquidity so short-term rates stay near the policy rate, ensuring the
“signal” travels through markets.
• Open Market Operations (OMOs) and Operation Twist
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o By buying or selling government bonds, the RBI affects liquidity and shapes
the yield curve. “Operation Twist” swaps short- and long-term bonds to
influence longer borrowing costs without changing the policy rate.
• Reserve requirements (quantity tools)
o The Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) determine
how much of banks’ deposits must be parked in safe assets. Tweaks here
directly alter lendable resources.
• Targeted liquidity windows (LTRO/TLTRO-style measures)
o Special long-term repos at attractive rates channel credit to priority or
stressed sectors when broad rate cuts won’t do the trick.
• Macroprudential levers (credit conditions)
o Risk weights, exposure norms, provisioning, and countercyclical buffers shape
the appetite and direction of bank lending, complementing monetary aims.
• Selective/qualitative tools
o Moral suasion, directives, margin requirements, and sectoral guidance adjust
the composition of credit without changing overall money supply.
• Communication/forward guidance
o Clear guidance reduces uncertainty and moves expectations—often half the
battle in anchoring inflation and stabilizing markets.
These tools rarely act alone; the RBI calibrates a mix, depending on whether inflation,
growth, or financial stability is flashing red.
India’s current stance: the snapshot
• Rates and stance
o The Monetary Policy Committee (MPC) kept the policy repo rate at 5.50%,
with the SDF at 5.25% and MSF/Bank Rate at 5.75%, and maintained a
neutral stance. The stated framework remains to hit 4% CPI within a 2–6%
band while supporting growth2.
• Growth and inflation outlook
o The RBI projects real GDP growth around 6.5% for FY26 and CPI inflation
around 3.1% for the year, with some firming toward the second half as base
effects fade2.
• Why the pause now?
o Minutes cite external uncertainty—especially around global tariffs and
geopolitics—plus a desire to let earlier easing transmit fully. The MPC cut
rates cumulatively by around 100 bps since February 2025, and transmission
is still unfolding4.
• Flexibility over pre-commitment
o The Governor called for a watchful approach, arguing that a neutral stance
keeps options open as conditions evolve. Some members acknowledged
space for an August cut, yet preferred to wait given tariff uncertainty and
ongoing transmission6.
In short: inflation is benign, growth resilient but not roaring, and global risks prickly—hence
a cautious hold with the option to move either way3.
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Critical evaluation: what’s working, what to watch
• Inflation credibility is intact, maybe even too successful
o With CPI projected near 3.1%, inflation looks tame, even undershooting mid-
target for a while. That anchors expectations and supports real incomes. But
it also implies a relatively high positive real policy rate, which can dampen
investment if maintained too long2.
• Prudence amid global shocks makes sense—up to a point
o Holding rates in the face of tariff tension and geopolitical noise is defensible:
policy space matters if conditions worsen. The minutes reflect this “watchful
neutrality,” balancing caution with optionality3. Still, prolonged caution risks
missing a window to crowd in private capex if benign inflation persists5.
• Transmission over tinkering
o The RBI emphasizes giving time for past easing to flow through. That’s
sound—India’s lending rates and deposit pricing can lag. As CRR/liquidity
adjustments work through the system, the real economy may feel more of
the prior 100 bps cuts without new moves right now4.
• Monetary policy’s limits are real
o Analysts note rate cuts alone won’t fix trade, supply, or tariff shocks. The
stance reads as a “hawkish pause”—data-dependent and sober about
monetary limits. Fiscal support (e.g., targeted tax relief or GST tweaks) can
share the load, especially if trade headwinds bite.
• Risk management vs. growth impulse
o External risk management has rightly dominated. But if inflation remains
anchored and tariffs don’t spiral, a calibrated nudge—say, a small cut
combined with OMOs to steady long yields—could ease real rates without
stoking excess leverage. The MPC minutes reveal at least some openness to
easing down the road3.
Bottom line: the RBI’s stance protects credibility and preserves ammunition. The risk? If
benign inflation lingers and private investment stays hesitant, the policy mix could feel a bit
too tight for too long7.
What to watch and what could be refined
• Data triggers for action
o A clear reaction function—e.g., if core inflation stays near 4% with weak
investment sentiment, consider a modest cut—would help markets. The
current neutral stance already implies flexibility; making the triggers legible
would amplify that benefit3.
• Yield curve management
o With growth at ~6.5% and inflation subdued, anchoring long-term borrowing
costs via balanced OMOs/Operation Twist could support capex without a
headline rate cut.
• Targeted liquidity, not floodgates
o If sectoral credit pockets are tight (MSMEs/exporters amid tariffs), targeted
long-term repos or guarantee-backed flows may work better than broad
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easing—consistent with the view that monetary policy has limits in
addressing supply/trade shocks.
• Keep an eye on savings dynamics
o As one analyst cautions, cutting rates too far can risk household savings
behavior. Calibrating deposit rates, small-savings alignment, and liquidity
conditions is key to avoid destabilizing funding while supporting growth.
• Policy mix, not policy silo
o Given tariff uncertainty, pairing monetary prudence with nimble
fiscal/structural moves (logistics, export facilitation, MSME support) can
protect growth. The MPC minutes’ watchfulness sits well with such
coordination3.
Bringing it all together: the music and the mix
Think back to that rainy morning. The RBI isn’t turning one big dial; it’s balancing many—
policy rate, liquidity, OMOs, guidance, and prudential guardrails. Today’s composition: repo
at 5.50%, neutral stance, benign inflation, resilient-but-cautioned growth, and a preference
to let earlier easing seep through before acting again2. The minutes show a committee that
sees the case for future cuts but refuses to pre-commit amid tariff fog and still-moving
transmission64.
As a score, it’s disciplined and credible. As a performance, it could use a touch more melody
for investment if inflation stays kind: steady hands on liquidity, occasional yield-curve
tuning, and readiness for a measured cut when the external static fades. Until then, the
music plays on—clear, careful, and, for now, just loud enough.
2. What is Negotiable Instruments Act, 1881 ? Explain its features and types.
Ans: A Portside Problem in 1881
Merchants from Bombay to Calcutta were shipping goods worth thousands of rupees across
oceans. But here was the problem: carrying sacks of silver coins wasn’t safe (or convenient).
Instead, they began using pieces of paper — written promises that the buyer would pay the
seller after goods arrived or at an agreed date.
These “paper promises” — cheques, promissory notes, bills of exchange — became the
lifeblood of trade. But without a clear legal framework, disputes arose. What if someone
refused to pay? What if a cheque changed hands multiple times before being cashed? Could
the new holder claim the money without fuss?
To solve these issues, in 1881 the British Indian government passed a law that still governs
such instruments today: The Negotiable Instruments Act, 1881.
What is the Negotiable Instruments Act, 1881?
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In simple words: It’s the Indian law that defines and regulates negotiable instruments —
written documents guaranteeing the payment of a specific sum of money, either on
demand or at a set time, where the right to receive payment can be freely transferred
from one person to another.
In even plainer terms — it’s the rulebook for how cheques, bills of exchange, and
promissory notes work, so that money can move smoothly without physical cash changing
hands each time.
Key Features of the Act — Told Through Our Merchant Story
Let’s step back into that bustling port and see how the Act works.
Free Transferability — Like Passing the Baton
If Merchant A has a bill of exchange and endorses it to Merchant B, B can claim the money
directly. No lengthy approvals. This “negotiability” is the heart of the Act — the ease of
transfer makes these papers as good as cash in trade.
Presumption of Consideration
The law assumes that every negotiable instrument is backed by some value exchanged. If
you give me a promissory note, the default assumption is that I gave you goods, money, or
service in return. This saves time in disputes — no need to prove consideration unless
challenged.
Holder in Due Course — The Protected Hero
Say Merchant C receives a cheque in good faith, pays fair value for it, and has no clue about
any earlier fraud. Even if there was a problem between the original parties, C can still claim
the full amount. This protects honest third parties and keeps trade flowing.
Written and Signed — No Verbal Promises
The Act is clear: these instruments must be in writing and signed by the maker/drawer.
Spoken promises don’t count.
Payable in Money Only
You can’t make a negotiable instrument for “two sacks of rice” — it must specify a sum of
money.
Certainty of Amount and Time
The instrument must clearly mention how much is to be paid and when. Ambiguity creates
legal weakness.
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Endorsement and Delivery
For transfer, it’s not enough to just say “It’s yours” — proper endorsement (signing) and
delivery are required for the new holder to have rights.
Special Provisions for Cheques
The Act has been amended over time to cover modern banking realities — e.g., Section 138
on cheque dishonour, which makes bouncing a cheque a criminal offence in certain
situations.
Types of Negotiable Instruments under the Act
The Act recognises three main types — but other instruments (like dividend warrants) can
also function similarly under law or custom. Let’s meet them.
Promissory Note — The Personal Promise
Definition: A written and signed promise by one person (the maker) to pay a definite sum to
another (the payee) or their order.
Example in our port story: Merchant D borrows ₹10,000 from Merchant E and gives a
promissory note:
“I promise to pay E or his order ₹10,000 on 1st December 1881.” — Signed, D.
Key Points:
• Must be unconditional.
• Must have maker’s signature.
• Payable to a specific person or order.
Bill of Exchange — The Order to Pay
Definition: A written order from one person (the drawer) to another (the drawee), directing
them to pay a certain sum to a third person (the payee) on demand or at a fixed future time.
Example: Merchant F sells goods to Merchant G and draws a bill of exchange:
“Pay to H or order ₹20,000 after 90 days.” — Signed, F (drawer), accepted by G (drawee).
Key Points:
• Involves three parties (drawer, drawee, payee).
• Common in trade credit.
• Can be endorsed to others before payment date.
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Cheque — The Bank’s Promise
Definition: A bill of exchange drawn on a specified banker and payable on demand.
Example: Merchant J writes a cheque to Merchant K for ₹5,000. The bank pays K
immediately on presentation (assuming funds are available).
Key Points:
• Always drawn on a bank.
• Always payable on demand.
• Post-dated or stale cheques have special rules.
Why It Still Matters Today
Even in an era of UPI and instant transfers, cheques and formal credit instruments remain
important — for legal security, large-value transactions, and in many rural or traditional
markets. The Negotiable Instruments Act ensures that:
• Transfers of payment rights are smooth.
• Holders in due course are protected.
• Dishonour of a cheque has real consequences.
Quick Recap Table
Type
Parties
Nature
Payable
Promissory
Note
Maker, Payee
Promise to pay
On demand/fixed time
Bill of
Exchange
Drawer, Drawee, Payee
Order to pay
On demand/fixed future
date
Cheque
Drawer, Bank (Drawee),
Payee
Order to bank to
pay
On demand
Wrapping It Up Like a Story’s Moral
From the wooden desks of 1881’s colonial trade offices to the glass towers of modern
banks, the Negotiable Instruments Act has been the invisible handshake that keeps
commerce running — transforming simple pieces of paper into trusted substitutes for
money.
It’s not just a relic of the past — it’s a living law that still decides how promises to pay are
made, transferred, and enforced in India’s economy today.
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SECTION-B
3. What is bank lending? Discuss in detail the significance of bank lending with special
reference to India.
Ans: The Chai Shop and the Seed of an Idea
In a quiet lane of Amritsar, Ramesh serves his customers hot chai and crispy pakoras. His
dream? To expand into a bigger space and add a snack counter.
There’s just one problem — he doesn’t have the money to make it happen.
That’s when his friend tells him, “Go to the bank. Ask for a loan.” A week later, Ramesh
walks out of his local branch with an approved business loan. Within months, his shop is
buzzing with new customers, and his earnings have doubled.
What happened here is the essence of bank lending — the flow of money from banks to
people or businesses, enabling growth, jobs, and progress.
What is Bank Lending?
In simple words: Bank lending is the process by which banks provide funds to individuals,
businesses, or governments, with the agreement that the money will be repaid — usually
with interest — over a certain period of time.
The bank acts as an intermediary:
• It gathers money from depositors (who keep savings in bank accounts).
• It lends that money to borrowers who need funds for consumption, investment, or
business expansion.
This process keeps money circulating in the economy, ensuring that those with surplus
funds (depositors) indirectly support those with a shortage (borrowers).
Common Forms of Bank Lending
• Personal loans – for individual needs like education, medical expenses, or weddings.
• Business loans – to start or expand a business.
• Agricultural loans – for farmers to buy seeds, equipment, or irrigation facilities.
• Housing loans – for building or purchasing homes.
• Overdrafts/Cash credit – flexible borrowing for short-term needs.
The Significance of Bank Lending — A Lifeline for the Economy
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To understand why bank lending matters, let’s step back and see the bigger picture. If the
economy is a tree, bank lending is the water that helps every branch grow. Without it,
growth slows and opportunities dry up.
Here’s why it’s so important — especially for a country like India.
Fuels Economic Growth
When banks lend, businesses can invest in machinery, expand production, and hire more
workers.
• In Ramesh’s case, his loan allowed him to renovate and expand his chai shop.
• On a larger scale, loans to industries allow new factories to be built — increasing
GDP and creating jobs.
In India, MSMEs (Micro, Small, and Medium Enterprises) — which contribute nearly 30% of
GDP — rely heavily on bank credit to survive and expand.
Encourages Entrepreneurship
India is a land of entrepreneurs — from tech startups in Bengaluru to handicraft sellers in
Jaipur. Bank lending gives them the fuel to turn ideas into reality, reducing dependence on
moneylenders who may charge exploitative interest rates.
Government schemes like MUDRA loans encourage banks to lend to small entrepreneurs
without heavy collateral requirements.
Supports Agriculture — India’s Backbone
Agriculture employs a large part of India’s workforce. Banks provide seasonal crop loans,
equipment finance, and irrigation funding to farmers.
Example: Kisan Credit Cards (KCC), offered through banks, give farmers easy access to credit
when they need it most — especially before sowing season.
Promotes Financial Inclusion
In rural India, bank lending plays a major role in bringing people into the formal financial
system. Loans tied to savings accounts, insurance, and other banking services help reduce
poverty and dependence on informal lenders.
The Jan Dhan Yojana has expanded banking access, enabling more people to borrow at
reasonable rates.
Stabilises and Directs the Economy
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The Reserve Bank of India (RBI) uses policy tools like the repo rate and cash reserve ratio to
influence how much banks can lend and at what cost.
In times of slowdown, lowering interest rates encourages more borrowing, stimulating
demand. In boom times, tightening credit can prevent overheating and inflation.
Encourages Capital Formation
Capital formation means creating assets that will yield income for years — factories,
infrastructure, housing. Without bank loans, many such projects would never get off the
ground due to high upfront costs.
Creates a Multiplier Effect
One loan often triggers many economic activities.
• When Ramesh expanded his shop, he hired more staff, bought more milk from local
suppliers, and increased sales for nearby vendors. This ripple effect benefits the
whole community.
Significance in the Indian Context
India’s development story is closely tied to how bank lending reaches the right people at the
right time:
• Public Sector Banks dominate rural and priority sector lending.
• Priority Sector Lending Norms mandate that a certain portion of bank credit must go
to sectors like agriculture, MSMEs, and weaker sections.
• Infrastructure Push — Loans from banks are crucial in financing roads, ports, and
renewable energy projects.
• Digital Lending — Platforms linked to banks are making small-ticket loans faster and
more transparent, even in remote areas.
Challenges in Bank Lending in India
While lending is vital, there are hurdles:
• NPAs (Non-Performing Assets) — When borrowers fail to repay, banks’ capacity to
lend in future gets hurt.
• Credit access gaps — Many small farmers and micro-businesses still struggle to get
formal loans due to lack of collateral or credit history.
• Risk aversion — After bad loan episodes, some banks become overly cautious,
slowing the flow of credit.
The Way Forward
• Strengthen credit appraisal — Better due diligence reduces NPAs.
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• Use technology — Digital lending, Aadhaar-based verification, and AI risk assessment
can widen access while protecting banks.
• Encourage sector-specific products — Tailor loans for startups, farmers, exporters,
and renewable energy projects.
• Balance growth and stability — The RBI and banks must keep lending flowing
without creating credit bubbles.
Wrapping It Up Like a Moral
Bank lending is not just a financial transaction — it’s an enabler of dreams, jobs, and
national progress.
From the chai shop in Amritsar to mega infrastructure in Mumbai, the money that flows
from banks turns potential into reality. For India, with its young population, entrepreneurial
spirit, and diverse economy, healthy and inclusive bank lending is as important as
monsoon rains for the harvest.
4. Write notes on the following:
(i) Risk Management in Indian Banking Sector
(ii) Importance of BASEL norms.
Ans: The Spaceship Called “Indian Banking”
Imagine the Indian banking system as a massive spaceship flying through the unpredictable
universe of the economy. It carries millions of passengers — depositors, borrowers,
investors — and vast amounts of precious cargo — people’s savings and the country’s
capital.
Now, in space, you can never predict what might happen next: meteor showers (economic
downturns), black holes (frauds or NPAs), or sudden storms (global crises).
To survive, the spaceship needs a risk management system — radars, shields, safety
protocols. And for global travel, it must follow international flight rules — like the BASEL
norms — so it’s welcome at every intergalactic (read: global financial) port.
(i) Risk Management in the Indian Banking Sector
Risk management in banking is about identifying, measuring, and controlling risks so the
bank stays safe, stable, and profitable — even in turbulent conditions.
Let’s explore the major risks Indian banks face and how they deal with them.
Credit Risk — Will the Borrower Pay Back?
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This is the risk that a borrower won’t repay the loan, leading to Non-Performing Assets
(NPAs).
Example: A bank lends ₹100 crore to a power company, but the project stalls and the
company can’t pay.
How Banks Manage It:
• Careful credit appraisal before lending.
• Risk-based pricing of loans.
• Diversifying loans across sectors.
• Following RBI norms on provisioning for NPAs.
Market Risk — Value Can Rise or Fall
Banks invest in government bonds, foreign currency, or other securities. Market risk is the
danger that interest rate changes, stock market volatility, or currency fluctuations reduce
the value of these holdings.
How Banks Manage It:
• Duration matching in bond portfolios.
• Hedging through derivatives.
• Maintaining trading limits for dealers.
Liquidity Risk — Running Out of Cash
This is when a bank can’t meet short-term payment obligations, even if it’s profitable on
paper.
Example: Many depositors withdraw money at the same time.
How Banks Manage It:
• Keeping enough Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) as per
RBI rules.
• Holding high-quality liquid assets.
• Having contingency funding plans.
Operational Risk — Human Error or System Failure
Losses caused by failed processes, technology glitches, or fraud.
Example: A cyberattack on an online banking portal.
How Banks Manage It:
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• Strong internal controls and audits.
• Cybersecurity systems and firewalls.
• Employee training and rotation of duties.
Compliance & Legal Risk — Breaking the Rules
Banks must follow RBI guidelines, anti-money laundering laws, and KYC norms.
Example: Heavy penalties have been imposed when banks fail to report suspicious
transactions.
How Banks Manage It:
• Appointing compliance officers.
• Regular legal audits.
Risk Management Tools in Indian Banks
• Credit Rating Systems — Internal models to assess borrower quality.
• Stress Testing — Simulating worst-case scenarios (economic slowdown, currency
crisis).
• Risk Committees — Dedicated teams within banks.
• Core Banking Systems (CBS) — Integrated IT systems for real-time monitoring.
Importance for India
In India, where banks finance everything from farmers to billion-dollar infrastructure, poor
risk management can snowball into a national crisis. The 2008 global meltdown and India’s
own NPA crisis post-2014 showed why vigilance is key.
(ii) Importance of BASEL Norms
Let’s return to our spaceship analogy. No matter how skilled the crew, the ship must meet
international safety standards to dock at global ports and attract passengers from around
the world. In banking, those standards are BASEL norms.
What Are BASEL Norms?
They are international banking regulations developed by the Basel Committee on Banking
Supervision (BCBS) in Switzerland. They set minimum capital requirements and risk
management guidelines for banks worldwide.
The aim?
• Make banks more resilient to financial shocks.
• Ensure global consistency so banks can trust each other across borders.
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The Three Generations of BASEL Norms
BASEL I (1988) — The First Safety Manual
• Focus: Credit risk.
• Introduced the concept of Capital to Risk-weighted Assets Ratio (CRAR) — minimum
8% globally; RBI kept it at 9% for Indian banks (more conservative).
BASEL II (2004) — Adding More Checks
• Expanded to include market risk and operational risk.
• Based on Three Pillars:
1. Minimum Capital Requirements
2. Supervisory Review
3. Market Discipline — public disclosure for transparency.
BASEL III (2010 onwards) — The Stronger Shield
• Developed after the 2008 crisis.
• Introduced stricter capital definitions, Capital Conservation Buffer, and Leverage
Ratio.
• Added Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to
ensure banks can survive liquidity stress.
Why BASEL Norms Matter for India
Stability of the Banking System
By ensuring banks have enough capital to absorb losses, BASEL reduces the risk of collapses.
In India, where public trust in banks is vital, this stability is priceless.
Global Credibility
Indian banks operate abroad and deal with foreign institutions. Compliance with BASEL
norms signals to the world that our banks follow international best practices.
Better Risk Management Culture
BASEL forces banks to measure, monitor, and disclose risk more carefully — pushing them
toward stronger internal systems.
Cushion Against Economic Shocks
During COVID-19, well-capitalised banks were able to keep lending and absorbing stress
without collapsing — a BASEL principle in action.
Regulatory Alignment
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RBI uses BASEL as a benchmark but often goes beyond — like setting CRAR at 9% instead of
the 8% global minimum — to ensure extra safety in the Indian context.
Quick Comparison Table
Aspect
Risk Management in India
BASEL Norms
Scope
Specific to India’s market and RBI
guidelines
Global framework by Basel Committee
Objective
Identify, control, and mitigate risks
in Indian banks
Set uniform global standards for
safety and soundness
Key Tools
Credit appraisal, stress testing, CBS
CRAR, buffers, leverage & liquidity
ratios
Wrapping It Up Like a Story’s Moral
Whether it’s a chaiwala’s small loan, a corporate’s massive project finance deal, or India’s
international trade settlements, the banking “spaceship” has to fly smoothly and safely.
• Risk management is the crew’s vigilance — scanning for trouble, fixing issues, and
keeping passengers safe.
• BASEL norms are the rulebook agreed by all spacefaring nations — so no matter
where the ship docks, it meets the gold standard.
In India’s journey toward becoming a $5 trillion economy, strong risk management
practices guided by global norms aren’t optional — they’re the navigation system and the
shield that ensure the voyage is not just fast, but safe.
SECTION-C
5. What is eCRM in banking? Discuss recent trend of e-CRM in Commercial Banks in India.
Ans: The Morning That Banking Came to Me
It’s 7:30 a.m. in Amritsar. Ananya is sipping her chai when her phone buzzes.
• A personalised message from her bank wishes her happy birthday.
• The app suggests a special fixed deposit offer tailored to her savings pattern.
• A chatbot pops up, ready to answer her query about a recent transaction —
instantly, without her having to call customer care.
She smiles. She didn’t go to the bank. The bank came to her.
That, in essence, is e-CRM in banking — the art and science of using technology to manage
and deepen customer relationships, anytime, anywhere.
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What is e-CRM in Banking?
In simple words: e-CRM (Electronic Customer Relationship Management) in banking is the
use of internet-based and digital technologies to manage customer interactions, understand
their needs, and offer personalised services — all with the aim of building loyalty,
satisfaction, and long-term value.
It’s the digital evolution of traditional CRM. Where old-school CRM relied on face-to-face
meetings, phone calls, and paper records, e-CRM integrates:
• Web portals
• Mobile apps
• Email/SMS alerts
• Chatbots and AI assistants
• Social media engagement
…into one seamless system that gives the bank a 360-degree view of the customer.
Core Features of e-CRM in Banking
• Customer Data Integration – Pulling information from multiple touchpoints (branch
visits, ATM use, online banking, call centre logs) into a single profile.
• Personalisation – Using analytics to tailor offers, messages, and services to each
customer’s habits and preferences.
• Automation – Triggering timely reminders, alerts, and follow-ups without manual
intervention.
• Self-Service – Empowering customers to solve problems or complete transactions
without waiting in queues.
• Real-Time Support – Chatbots, video banking, and instant messaging for quick
resolutions.
Why e-CRM Matters in Banking
In today’s competitive market, customers don’t just compare banks — they compare
experiences. If a food delivery app can remember your favourite order, why can’t your bank
remember your preferred loan tenure?
For banks, e-CRM:
• Improves retention — Happy customers stay longer.
• Increases cross-selling — Knowing a customer’s profile helps offer the right product
at the right time.
• Cuts costs — Digital interactions are cheaper than physical ones.
• Builds trust — Consistent, personalised service strengthens relationships.
Recent Trends of e-CRM in Commercial Banks in India
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India’s banking sector is in the middle of a digital-first transformation. According to industry
insights2, here are the key trends shaping e-CRM in 2025:
AI-Powered Personalisation
Banks are using Generative AI (GenAI) and predictive analytics to anticipate customer
needs.
• Example: Analysing spending patterns to suggest a customised credit card.
• AI “copilots” help bank staff draft personalised emails, recommend next-best
actions, and summarise customer histories instantly.
Conversational Banking
Chatbots and voice assistants are becoming smarter, handling not just FAQs but complex
queries.
• Example: A customer can ask, “What’s my EMI if I take a ₹5 lakh loan for 3 years?”
and get an instant, accurate answer.
• Integration with WhatsApp and regional language support is making this more
inclusive.
Omnichannel Experience
Customers expect the same seamless service whether they’re on a mobile app, website,
ATM, or branch.
• Example: Start filling a loan application on the app, finish it at the branch without
repeating details.
Social Media Integration
Banks are monitoring and engaging with customers on platforms like Instagram, X (Twitter),
and LinkedIn.
• Complaints raised on social media are routed directly into the CRM for quick
resolution.
Hyper-Segmentation
Instead of broad categories like “youth” or “senior citizens,” banks are creating micro-
segments.
• Example: “First-job urban millennials who invest in SIPs” — and then designing
offers just for them.
Embedded Financial Services
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Through APIs, banks are integrating their services into non-banking platforms.
• Example: Loan offers appearing inside an e-commerce checkout page, powered by
the bank’s CRM intelligence.
Data Privacy and Compliance Focus
With great data comes great responsibility. Banks are strengthening encryption, consent
management, and compliance with RBI’s digital banking guidelines.
Video Banking and Remote Advisory
Relationship managers now connect over secure video calls, sharing screens to explain
investment options — blending personal touch with digital convenience.
Case-in-Point: How Indian Banks Are Using e-CRM
• HDFC Bank – Uses AI-driven analytics to personalise product recommendations on
its mobile app.
• SBI YONO – Integrates lifestyle services (shopping, travel) with banking, using e-CRM
to cross-sell.
• ICICI Bank – Offers WhatsApp banking with secure, personalised responses linked to
CRM data.
Challenges in e-CRM Adoption
• Data Silos – Integrating legacy systems with modern CRM platforms.
• Customer Trust – Balancing personalisation with privacy.
• Digital Divide – Ensuring rural and less tech-savvy customers aren’t left behind.
The Road Ahead
The future of e-CRM in Indian banking will likely see:
• Deeper AI integration for proactive service.
• Voice biometrics for secure, frictionless authentication.
• Emotion AI to detect customer sentiment during interactions and adjust responses
accordingly.
• Sustainability-linked engagement — rewarding customers for eco-friendly financial
choices.
Wrapping It Up Like a Story’s Moral
Just like Ananya’s morning, where her bank anticipated her needs before she even asked, e-
CRM turns banking from a place you go into a service that lives with you.
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For commercial banks in India, it’s no longer enough to be efficient — they must be
empathetic, intelligent, and omnipresent. And in that journey, e-CRM isn’t just a tool — it’s
the bridge between cold financial transactions and warm, lasting relationships.
6. Write notes on the following:
(a) Objectives of KYC Guidelines
(b) Money Laundering
Ans: The Concert Gate and the Mystery Guest
Imagine you’re the organiser of a huge concert. Thousands of people are lining up to enter.
You’ve sold tickets, but you also know that some people might try to sneak in with fake
passes or cause trouble inside.
So, at the gate, you have a security check:
• Verify each person’s identity.
• Make sure their ticket is genuine.
• Keep a record of who entered.
This is exactly what banks do with KYC Guidelines — except instead of a concert, it’s the
financial system, and instead of fake passes, the threat is money laundering, fraud, and
terrorism financing.
(a) Objectives of KYC Guidelines
KYC stands for Know Your Customer. In India, it’s a legal and regulatory requirement under
the Prevention of Money Laundering Act (PMLA), 2002 and the RBI’s KYC Directions, 2016
(updated regularly).
The core objective is simple:
To ensure that banks and other financial institutions know exactly who they are dealing with,
so that the financial system is not misused by criminal elements for money laundering or
terrorist financing2.
Let’s break this down into clear, story-like objectives:
Preventing Criminal Misuse of Banks
Just like a concert organiser doesn’t want troublemakers inside, banks don’t want their
accounts used for illegal activities — whether it’s hiding black money, funding terrorism, or
moving stolen funds.
Verifying Customer Identity and Address
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KYC ensures that the person opening an account is real, traceable, and accountable. This is
done through Officially Valid Documents (OVDs) like Aadhaar, PAN, passport, voter ID, etc.
Understanding the Nature of the Customer’s Activities
Banks don’t just collect documents — they also try to understand what the customer does.
Is it a salaried employee, a trader, a farmer, or a company? This helps detect unusual
transactions later.
Risk Profiling and Monitoring
KYC allows banks to categorise customers into low, medium, or high risk. For example:
• A government employee with a fixed salary = low risk.
• A politically exposed person (PEP) with large international transfers = high risk.
Complying with Laws and International Standards
India is a member of the Financial Action Task Force (FATF), which sets global anti-money
laundering standards. KYC compliance ensures India’s banking system stays credible
internationally.
Enhancing Customer Trust
When customers know their bank is serious about security, it builds confidence. It’s like
concert-goers feeling safe because of strict entry checks.
In short: KYC is the first line of defence against financial crime — a gatekeeping process that
protects both the bank and the economy.
(b) Money Laundering
Now, let’s move from the concert gate to a backstage trick some shady characters might
try.
The Disappearing Act of Dirty Money
Money laundering is like taking stolen or illegally earned money (“dirty money”) and putting
it through a series of steps so it comes out looking “clean” — as if it was earned legally.
In India, it’s a criminal offence under the Prevention of Money Laundering Act (PMLA),
2002. The Enforcement Directorate (ED) and the Financial Intelligence Unit (FIU-IND) are
the main agencies that investigate and monitor such activities.
The Three Classic Stages of Money Laundering
Placement — Getting In
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The criminal introduces the illegal money into the financial system.
• Example: Depositing large amounts of cash into multiple bank accounts to avoid
suspicion.
Layering — Hiding the Trail
The money is moved through complex transactions to make it hard to trace.
• Example: Transferring funds between multiple accounts, converting cash into assets,
or sending it abroad through shell companies.
Integration — Coming Out Clean
The “cleaned” money re-enters the economy as apparently legitimate funds.
• Example: Investing in real estate, luxury goods, or legitimate businesses.
Why Money Laundering is Dangerous
• Funds Crime and Terrorism – Laundered money often finances drug trafficking, arms
smuggling, and terror networks.
• Damages the Economy – It distorts markets, fuels inflation, and undermines fair
competition.
• Erodes Trust in Banks – If banks are seen as unsafe or complicit, people lose faith in
the system.
How India Fights Money Laundering
• KYC & Customer Due Diligence (CDD) – To stop criminals from opening anonymous
accounts.
• Suspicious Transaction Reports (STRs) – Banks must report unusual activity to FIU-
IND.
• Cross-Border Cooperation – Sharing intelligence with other countries under FATF
guidelines.
• Technology Use – AI-based transaction monitoring to detect patterns of laundering.
Quick Recap Table
Aspect
KYC Guidelines
Money Laundering
Purpose
Verify identity, prevent misuse of
banking channels
Disguise illegal money as legitimate
Legal Basis
RBI KYC Directions, PMLA 2002
PMLA 2002, FATF standards
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Key Actors
Banks, RBI, FIU-IND
Criminals, shell companies, corrupt
officials
Impact if
Ignored
Fraud, terrorism financing, loss of
trust
Economic instability, crime funding,
reputational damage
Wrapping It Up Like a Story’s Moral
In our concert analogy:
• KYC is the vigilant security guard at the gate — checking IDs, scanning tickets, and
keeping trouble out.
• Money laundering is the backstage trickster — trying to sneak in stolen goods and
make them look like legitimate props.
For India’s financial “concert” to play on safely, both strict KYC compliance and relentless
anti-money laundering efforts are essential. They protect not just the banks, but the entire
economy — ensuring the music of commerce plays on without being hijacked by crime.
SECTION-D
7. What is the purpose of the corporate governance ? How does RBI contribute to
corporate governance?
Ans: The Ship Called “Corporate India”
Imagine a huge ship carrying thousands of passengers — shareholders, employees,
customers, suppliers, and the community at large. The ship’s mission? To reach its
destination — sustainable growth and long-term value creation.
But here’s the catch: the sea is full of risks — storms of market volatility, icebergs of fraud,
and waves of mismanagement. Without a proper navigation system and a disciplined crew,
the ship could drift off course or even sink.
That navigation system, in the corporate world, is called Corporate Governance. And in
India’s financial sector, one of the most important “harbour masters” ensuring ships stay on
course is the Reserve Bank of India (RBI).
What is Corporate Governance?
In simple words: Corporate governance is the framework of rules, practices, and processes
by which a company is directed and controlled, ensuring fairness, transparency,
accountability, and responsibility towards all stakeholders.
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It’s not just about compliance — it’s about building trust. Good corporate governance
ensures that decisions are made ethically, risks are managed wisely, and the interests of all
stakeholders are protected.
Purpose of Corporate Governance — Why It Exists
Let’s break it down into clear, relatable purposes:
Protecting Stakeholder Interests
• Just like a ship’s captain must ensure the safety of all passengers, corporate
governance ensures that the rights of shareholders, employees, customers,
creditors, and society are respected.
Ensuring Transparency
• Transparency is like a clear map — everyone knows where the ship is headed. In
business, this means honest financial reporting, open communication, and no hidden
agendas.
Promoting Accountability
• If something goes wrong, governance ensures there’s a clear chain of responsibility
— no passing the blame endlessly.
Enhancing Long-Term Sustainability
• Good governance avoids short-term greed in favour of long-term stability — steering
clear of risky shortcuts that could harm the company’s future.
Building Investor Confidence
• Investors are more likely to “board the ship” if they trust the captain and crew.
Strong governance attracts capital and boosts market reputation.
Complying with Laws and Ethical Standards
It ensures the company operates within the legal framework and upholds ethical norms —
avoiding “pirate behaviour” that could lead to penalties or collapse.
RBI’s Role in Corporate Governance — The Watchful Harbour Master
In India, the RBI is not just the central bank — it’s also a regulator of the banking and
financial sector, where governance failures can have systemic consequences.
Banks are special: they deal with public money, operate on trust, and are deeply
interconnected with the economy. A governance lapse in a bank can ripple through the
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entire financial system. That’s why RBI takes corporate governance in banks extremely
seriously.
How RBI Contributes to Corporate Governance
Issuing Governance Guidelines for Banks
RBI regularly issues Master Directions and circulars that lay down governance standards for
banks — covering board composition, fit-and-proper criteria for directors, and separation of
ownership from management.
Board Oversight and Structure
RBI mandates that bank boards must have a mix of executive and non-executive directors,
with independent directors bringing objectivity. It also specifies committees like:
• Audit Committee – for financial oversight.
• Risk Management Committee – for identifying and mitigating risks.
• Nomination and Remuneration Committee – for fair appointments and pay
structures.
Fit-and-Proper Criteria for Leadership
To prevent unqualified or conflicted individuals from steering the ship, RBI vets top
management and board members for integrity, competence, and track record.
Risk Management Frameworks
RBI aligns Indian banks with global best practices, including the Basel Committee’s
Principles for Enhancing Corporate Governance. This includes:
• Clear risk identification and monitoring.
• Strong internal audit functions.
• Transparent risk communication to stakeholders.
Disclosure and Transparency Norms
Banks must publish detailed financial statements, risk disclosures, and governance reports
— ensuring stakeholders have a clear view of the bank’s health.
Compliance and Enforcement
RBI conducts inspections, audits, and stress tests. If governance lapses are found, it can
impose penalties, restrict operations, or even supersede a bank’s board in extreme cases.
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Encouraging Ethical Culture
Through its guidelines, RBI promotes a culture of integrity — from whistleblower
mechanisms to fair customer treatment.
Adapting to Emerging Risks
In recent years, RBI has updated governance norms to address:
• Cybersecurity threats.
• Climate-related financial risks.
• Responsible use of Artificial Intelligence in banking decisions3.
RBI’s Governance Principles in a Nutshell
Principle
RBI’s Action
Board Responsibility
Clear roles, oversight of strategy and risk.
Board Composition
Independent, qualified members.
Risk Management
Dedicated committees, Basel alignment.
Transparency
Mandatory disclosures, public reporting.
Accountability
Fit-and-proper norms, enforcement powers.
Ethical Conduct
Codes of conduct, whistleblower policies.
Why RBI’s Role is Crucial in India
• Public Trust: Banks hold the savings of millions — governance failures can erode
confidence overnight.
• Systemic Stability: A weakly governed bank can trigger a chain reaction in the
economy.
• Global Integration: Strong governance aligns Indian banks with international
standards, attracting foreign investment.
Wrapping It Up Like a Story’s Moral
Think back to our ship. Corporate governance is the navigation system, ensuring the vessel
stays on course, avoids hazards, and reaches its destination safely.
In India’s banking seas, the RBI is the vigilant harbour master — setting the rules, inspecting
the ships, training the crew, and stepping in when danger looms.
Without governance, the ship risks drifting into storms. Without the RBI’s watchful eye, the
entire fleet — and the economy it carries — could be at risk.
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Good corporate governance, backed by strong RBI oversight, ensures that India’s financial
ships sail not just fast, but true and safe — delivering every passenger to the shores of
trust, stability, and prosperity.
8. What are the various fee based innovative services provided by banks in the current
Indian banking system ?
Ans: The Airport Analogy — How Banks Earn Beyond Interest
Picture this: You’re at the airport. Airlines make money from ticket sales (like banks earn
from lending interest). But look closer — they also earn from baggage fees, seat upgrades,
lounge access, and in-flight meals.
Banks are the same. While lending is their “ticket sales,” they also have a whole menu of
fee-based innovative services — extra offerings that customers pay for, which don’t depend
on interest rates.
In today’s Indian banking system, these services have become big business — especially as
competition squeezes lending margins. Private banks, in particular, are aggressively cross-
selling such services, with fee income contributing up to 22% of their total income in FY25.
What Are Fee-Based Services?
In simple words: Fee-based services are banking services for which the bank charges a fee,
commission, or service charge, instead of (or in addition to) earning interest.
They are part of a bank’s non-interest income and include everything from issuing a
demand draft to managing your investments.
Why Are They Important in India Today?
• Diversification of income – Reduces dependence on lending.
• Stable revenue – Less affected by interest rate cycles.
• Customer stickiness – More services mean deeper relationships.
• Digital leverage – Technology makes it easier to offer and scale these services.
The Various Fee-Based Innovative Services in Indian Banking
Let’s walk through them like different “stalls” in our airport analogy — each offering
something unique.
Wealth Management & Investment Advisory
Banks now act like personal financial coaches.
• Portfolio management – Helping customers invest in mutual funds, bonds, equities.
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• Insurance distribution – Selling life, health, and general insurance as a corporate
agent.
• Estate planning – Advisory for wills, trusts, and succession.
Example: HDFC Bank’s “SmartWealth” platform integrates mutual fund investments,
insurance, and goal tracking in one app.
Payment & Collection Services
These are the “fast-track check-in” counters of banking.
• UPI merchant onboarding – Banks charge businesses for value-added UPI services.
• POS (Point of Sale) terminals – Rental and transaction fees from merchants.
• Bill payment services – Through Bharat BillPay and bank apps.
• Cash management services – For corporates handling large cash flows.
Trade Finance & Forex Services
For businesses importing/exporting goods, banks provide:
• Letters of Credit (LCs) – Guaranteeing payment to overseas suppliers.
• Bank Guarantees – Assuring performance or payment in contracts.
• Foreign exchange services – Currency conversion, remittances, hedging.
Innovation: Many banks now offer online trade portals where clients can initiate LC
requests, track shipments, and manage forex risk digitally.
Card-Based Services
Credit and debit cards are not just payment tools — they’re fee machines.
• Annual fees – Especially for premium cards.
• Interchange fees – From merchants on card transactions.
• Late payment & over-limit charges – On credit cards.
• Value-added benefits – Lounge access, concierge services (often bundled with a
fee).
Digital Banking Value-Adds
With mobile banking becoming the norm, banks are monetising premium features:
• Priority customer support – Paid concierge banking.
• Customised alerts & analytics – Spending insights, credit score tracking.
• API banking – Charging fintechs and corporates for integration.
Safe Deposit Lockers
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A classic service, but still in demand.
• Annual rental fees for lockers to store jewellery, documents, and valuables.
• Many banks now offer biometric access and insurance cover for locker contents (for
an extra fee).
Demat & Custodial Services
For stock market investors:
• Demat account maintenance – Annual fees.
• Transaction charges – For buying/selling shares.
• Custodial services – Safekeeping of securities for institutional clients.
Loan-Related Service Charges
Even lending has fee-based components:
• Processing fees – For home, car, or personal loans.
• Prepayment charges – In certain loan categories.
• Documentation charges – For legal and valuation reports.
Cross-Selling Lifestyle Services
Banks are bundling non-financial perks:
• Travel booking through bank apps (earning commission).
• Co-branded offers with e-commerce platforms.
• Subscription management for OTT, gym memberships, etc.
Advisory for Corporates & MSMEs
• Project appraisal – Evaluating business plans for funding.
• Syndication services – Arranging large loans from multiple lenders.
• MSME advisory – Helping small businesses access government schemes and
subsidies.
The Trend: Digital Cross-Selling & Private Bank Dominance
According to industry data, top private banks derive 80% of their “other income” from fee-
based services, up from 74% in FY24.
• They use AI-driven analytics to suggest the right product to the right customer at the
right time.
• Cross-selling credit cards, insurance, and investment products is now a core growth
strategy.
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• Even public sector banks like SBI are ramping up digital cross-sell capabilities to catch
up.
Challenges in Fee-Based Services
• Customer resistance – If fees seem excessive or hidden.
• Regulatory scrutiny – RBI keeps a close watch on transparency and fair pricing.
• Competition from fintechs – Many offer similar services at lower or zero fees.
The Road Ahead
Expect to see:
• Subscription-based banking – Pay a monthly fee for bundled premium services.
• Embedded finance – Banking services integrated into non-bank platforms (e.g.,
shopping apps).
• Hyper-personalisation – AI tailoring offers to micro-segments of customers.
Wrapping It Up Like a Story’s Moral
Just like an airline that earns as much from baggage, meals, and upgrades as from tickets,
modern Indian banks are no longer just “money lenders” — they’re full-service financial
supermarkets.
Fee-based innovative services are their way of:
• Deepening customer relationships.
• Diversifying income.
• Staying competitive in a fast-changing, tech-driven market.
And for customers, it means the bank is no longer just a place to keep money — it’s a one-
stop shop for everything from paying your electricity bill to planning your retirement,
booking your holiday, and even insuring your pet.
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
