Banking and Insurance — Winter 2019

Explain the essential principles of an insurance contract

Explain in brief the role and main functions of Reserve Bank of India?

What do you mean by Priority Sector Lending? Which are the different categories included under priority sector?

“Insurance Regulatory and Development Authority (IRDA) plays pivotal role in the development of insurance industry in India” Comment on this statement.

Are you in favor of digital banking services? Yes or No. Justify your answer properly.

Compare the traditional life insurance plans and market related variable life insurance plans along with suitable examples.

Are you in support of having health insurance policy or against it? Justify your answer with appropriate reasons either for support it or against it.

CASE STUDY: Deposits and Movement of funds between bank accounts with no business rationale Facts of the Case Company Areceived €2.250.000 from Company Bin the form of a loan. By the next day Company Ainstructed the Bank to transfer the funds as follows:

€1.180.000 in another account of Company Awith another bank.

€1.000.000 issue of a banker’s draft in favor of Company C – based on loan agreement

€70.000 Cash withdrawal – no business explanation Following the above transactions, Company Ainstructed for the account to close (after 8 months from opening). Company Creceived €2.250.000 from Company Bin the form of a loan. Amonth later in the accounts of Company Ca banker’s draft amounting to €1.000.000 was also deposited (from Company Aabove) Funds were used as follows: Page 1 of

cash withdrawal €1.038.000 – no business explanation

€1.656.000 issue of a banker’s draft in favor of Company D – based on loan agreement

€95.000 issue of a banker’s draft in favor of Company E – based on loan agreement

€350.000 transfer to Company F – based on loan agreement

€100.000 turned into a Fixed Deposit upon maturity of which the funds have been withdrawn in cash. Following the above transactions, Company Cinstructed for the account to close (after 8 months from opening). Company Dreceived €1.656.000 from Company Cin the form of a loan. No further transactions.

What are the red flags identified which might indicate money laundering activity and/or terrorist financing in this case?

What are the risks and the potential threats that the accounting firm may be faced with in this situation?

What KYC/Due Diligence work could the accounting firm have carried out and when?

What steps may the accounting firm undertake to mitigate its risks and possible exposure?

CASE STUDY: Aquality of assets held by banks is a critical indicator of the health of the financial system. Ahigh quality of assets reflects the level of bank’s credit risk and efficiency in allocation of resources to the productive sector. Non- Performing Assets (NPA) are loans given by a bank or financial institutions wherein the borrower defaults or delay the interest or principal payments. As per the RBI norm, any interest or principal delayed beyond 90 days known as NPA. Further it is classified in to Standard Assets, Sub Standards Assets, Doubtful Assets and Loss Assets. NPA puts negative impact on the development of an economy. Currently, the Indian Banking sector facing the problem of high level of Non-Performing Assets and a recent report revealed by CARE rating puts the Indian economy on the top 5 countries with highest amount of bad loan in the world with NPA ratio of 9.9. Some of the reasons behind this situation include, defective lending process, lack of demand, ineffective recovery mechanism, natural calamities, industrial sickness, and changes in government policy, use of outdated technology, willful defaults, poor credit appraisal system and managerial deficiencies. Therefore, it is essential to take some remedial measures immediately. Now banks and financial institutions saddled with bad loans have multiple options to manage their NPA like One-time settlement scheme, Lok Adalats, Debt Recovery Tribunals, Corporate Debt Restructuring (CDR), SARFAESI Act and Assets Reconstruction Companies. The provisions of Indian laws do not facilitate speedy and effective enforcement of securities. Hence in order to make the process faster and result oriented recently newer mechanism like Insolvency and Bankruptcy Code, 2016 (IBC Code, 2016), Formation of National Company Law Tribunal (NCLT) and Prompt Corrective Action (PCA) have been initiated by regulators. It is expected to solve the issue of bad loan in a quick and efficient manner for Indian banking sector

Identify the causes of high level of NPA in the Indian Banking sector.

Which are the tools available for Banks to manage their NPA?

What is a Non-Performing Assets (NPA)? What are the types of NPA and reasons of NPA?

Which are the newer mechanism of NPA recovery and which are the old mechanisms? Why a regulator has initiated newer mechanisms? Page 2 of