CAIIB Bank Financial Management (BFM) Syllabus & Study Material 2024

MODULE A: INTERNATIONAL BANKING

Chapter Name

Topics

Exchange Rates and Forex Business

Foreign Exchange – Definition and Markets; Factors Determining Exchange Rates; Exchange Rate Mechanism; Foreign Exchange Dealing Room Operations; Derivative Products; RBI / FEDAI Guidelines; Foreign Exchange Arithmetic – Concepts and Examples.

Liberalised Remittance Scheme (LRS) and other Remittance Facilities for Residents

Capital Account Transactions and Current Account Transactions; Key Sections under FEMA vis-à-vis Liberalized Remittance Scheme; Permissible/Non-permissible Remittances under LRS; Operational Guidelines; Remittances under LRS for Current Account Transactions; Tax Collected at Source (TCS); LRS vis-à-vis Capital Account Transactions; Reporting Requirements under LRS.

Correspondent Banking and NRI Accounts

Correspondent Banking – Accounts and other Services; Nostro, Vostro and Loro Accounts; Electronic Modes of Transmission/Payment Gateways – SWIFT, CHIPS, CHAPS, RTGS, etc.; NRI Banking; NRI accounts – Rupee and Foreign Currency Accounts; Facilities to NRIs; Advances to Non-Residents against Non-Resident Deposits; Housing Loans to Non-Resident Indians.

Documentary Letters of Credit

Definition of Letter of Credit; Types of Letters of Credit; Operations of Letter of Credit; UCP 600 and Important Articles; Liabilities, Responsibilities and Rights of the Parties; Documents under LC – Scrutiny, Crystallization, Follow-up for Bills under LC and Safeguards for Banks; Risks Relating to LC Transactions; Standby Letter of Credit (Similar to Guarantees); Uniform Rules for Bank-to-Bank Reimbursements (URR–725); International Standard Banking Practice – 745 (ISBP 745); Incoterms; Case Studies

Facilities for Exporters and Importers

Exchange and Trade Control Guidelines for Exporters; Facilities for Exporters; Export Finance; Gold Card Scheme for Exporters; Export Data Processing and Monitoring System (EDPMS); Factoring and Forfaiting; Exchange and Trade Control Guidelines for Importers; Import Finance; Import Data Processing and Monitoring System (IDPMS); Trade Credit – Supplier’s Credit and Buyer’s Credit; Case Study on Export Finance.

External Commercial Borrowings and Foreign Investments in India

External Commercial Borrowings – Concepts; ECBs – Other Operational Concepts; Reporting Requirements; Conversion of ECB into Equity; Foreign Investments; Key Concepts; Eligible Foreign Investors; Eligible Investee Entities; Eligible Investment Instruments; Prohibited Sectors; Rules Governing Pledge of Shares; Operational Guidelines; Snap Shot of Non-Debt Instruments (NDI) Rules; List of Documents for Obtention of Foreign Investments; List of Documents for Refund of Foreign Investments Risks in Foreign Trade – Role of ECGC Definition of Risk and Risks in International Trade; Country Risk; Export Credit Insurance in International Trade; ECGC Role and Products; ECGC Policies; ECGC’s Products for Banks; Other Aspects Relating to ECGC Policies and Guarantees; Some of the Common “To Do Points” under ECGC Policies; Claims.

Role of EXIM Bank, Reserve Bank of India, Exchange Control in India – FEMA, FEDAI and Others

EXIM Bank – Role, Functions and Facilities; Reserve Bank of India – Role and Exchange Control Regulations in India; Foreign Exchange Management Act (FEMA) 1999; Role of FEDAI and FEDAI Rules; Short Notes on Other Topics: ECB and ADR/GDRs and FCCB.

International Financial Service Centres (IFSC), GIFTCity

Scope of IFSC in India; Opportunities at Gift City; Guidelines relating to setting up of IFSC Banking Units (IBUs); Role of IFSCA ; Regulatory Framework; Permissible Activities at IBUs; Relaxations for the FPI (Foreign Portfolio Investors) Entities at GIFT City.

Technology in International Banking

Introduction to Digitization in International Banking – An Overview, Evolution of Technology in International Banking; Benefits and Limitations of Technology in International Banking; Digital Platforms in International Banking; FINTECH and Evolution of FINTECH in International Banking; Delivery channels under FINTECH in International Banking; Sample process of International Trade Using Blockchain Technology; Challenges in FINTECH

MODULE B: RISK MANAGEMENT

Chapter Name

Topics

Risk and Basic Risk Management Framework

What is Risk, Linkages among Risk, Capital and Return; Why Risk Management; Basic Risk Management Framework.

Risks in Banking Business

Risk Identification in Banking Business; The Banking Book; The Trading Book; Off-Balance Sheet Exposures; Banking Risks – Definitions.

Regulation of Banking Industries – Necessities and Goals; The Need for Risk-based Regulation in a Changed World Environment; Basel I: The Basel Capital Accord; 1996 Amendment to Include Market Risk; Basel II Accord – Need and Goals; Basel II Accord; Towards Basel III; Capital Charge for Credit Risk; Credit Risk Mitigation; Capital Charge for Market Risk; Capital Charge for Operational Risk; Pillar 2 – Supervisory Review Process; Pillar 3 – Market Discipline; Capital Conservation Buffer; Leverage Ratio; Countercyclical Capital Buffer; Systemically Important Financial Institutions (SIFIs); Risk Based Supervision (RBS).

Market Risk

Market Risk – Concept; Market Risk in Banks; Market Risk Management Framework; Organisation Structure; Risk Identification; Risk Measurement; Risk Monitoring and Control; Risk Reporting; Managing Trading Liquidity; Risk Mitigation.

Credit Risk

General; Credit Risk Management Framework; Organisation Structure; Risk Identification; Risk Measurement; Credit Risk Control and Monitoring; Credit Risk Policies and Guidelines at Transaction Level; Credit Control and Monitoring at Portfolio Level; Active Credit Portfolio Management; Controlling Credit Risk through Loan Review Mechanism (LRM); Credit Risk Mitigation; Securitisation; Credit Derivatives (CDs).

Operational Risk and Integrated Risk Management

Operational Risk – General; Operational Risk – Classification; Operational Risk Classification by Event Type – Definitions; Operational Risk Management Practices; Management Overview and Organisational Structure; Processes and Framework; Risk Monitoring and Control Practices; Operational Risk Qualification; Operational Risk Mitigation; Scenario Analysis; Integrated Risk Management; The Necessity of Integrated Risk Management; Integrated Risk Management – Challenges; Integrated Risk Management – Approach.

Liquidity Risk Management

Liquidity Risk Management – Need & Importance; Potential Liquidity Risk Drivers; Types of Liquidity Risk; Principles for Sound Liquidity Risk Management; Governance of Liquidity Risk Management; Liquidity Risk Management Policy, Strategies and Practices; Management of Liquidity Risk; Ratios in respect of Liquidity Risk Management; Stress Testing; Contingency Funding Plan; Overseas Operations of the Indian Banks’ Branches and Subsidiaries and Branches of Foreign Banks in India; Broad Norms in Respect Of Liquidity Management; Liquidity Across Currencies; Management Information System; Reporting to the Reserve Bank of India; Internal Controls.

Basel III Framework on Liquidity Standards

Liquidity Coverage Ratio; Liquidity Risk Monitoring Tools; Net Stable Funding Ratio.

MODULE C: TREASURY MANAGEMENT

Chapter Name

Topics

Introduction to Treasury Management

The Concept; Functions of Integrated Treasury; The Process of Globalisation; Evolving Role of Treasury as Profit Centre; Organisation of Treasury.

Treasury Products

Products of Foreign Exchange Markets; Money Market Products; Securities Market Products; Domestic and Global Markets.

International Equity and Debt Products

Regulatory Environment; Global Depository Receipts; Indian Depository Receipts; External Commercial Borrowings; Trade Credits; Rupee Denominated Bonds.

Funding and Regulatory Aspects

Reserve Assets: CRR and SLR; The Liquidity Adjustment Facility (LAF); Payment and Settlement Systems.

Treasury Risk Management

Supervision and Control of Treasury; Market Risk and Credit Risk; Risk Measures: VaR and Duration; Use of Derivatives in Risk Management.

Derivative Products

Derivatives and the Treasury; OTC and Exchange Traded Products; Forwards, Options, Futures and Swaps; Interest Rate and Currency Swaps; Developments in Indian Markets and RBI Guidelines on Risk Exposure.

Treasury and Asset-Liability Management

Meaning of Asset-Liability Management (ALM), Liquidity Risk and Interest Rate Risk, Role of treasury in ALM, Use of derivatives in ALM, Credit risks and Credit Derivatives, Transfer pricing, Policy Environment.

MODULE D: BALANCE SHEET MANAGEMENT

Chapter Name

Topics

Components of Assets and Liabilities in Bank’s Balance Sheet and their Management

Components of a Bank’s Balance Sheet; What is Asset Liability Management, Significance of Asset Liability Management; Purpose and Objectives of Asset Liability Management; ALM as Co-ordinated Balance Sheet Management.

Capital Adequacy – Basel Norms

Scope of Application; Pillar-1 – Minimum Capital Requirements; Pillar 2- Supervisory Review Process; Pillar 3 – Market Discipline.

Asset Classification and Provisioning Norms

Asset Classification; Provisioning Norms

Liquidity Management

Definition; Dimensions and Role of Liquidity Risk Management; Measuring and Managing Liquidity Risk.

Interest Rate Risk Management

Essentials of Interest Rate Risk; Sources of Interest Rate Risk; Effects of Interest Rate Risk; Measurement of Interest Rate Risk; Interest Rate Risk Measurement Techniques; Strategies for Controlling Interest Rate Risk; Controls and Supervision of Interest Rate Risk Management; Sound Interest Rate Risk Management Practices; RBI’s Draft Guidelines on Interest Rate Risk in Banking Book

RAROC and Profit Planning

Profit Planning; Risk Aggregation and Capital Allocation; Economic Capital and RAROC

S. No

Questions

Options

Answers with explanation

What is the adjusted gap in re-pricing assets and liabilities?

a. 100 Cr
b. 120 Cr
c. 140 Cr
d. 160 Cr

Ans – a

Adjusted gap :

= (SB+FD) – (Call money+CC)
= (500 + 500) – (500 + 400)
= Rs.100cr (assets are less than liabilities. Hence negative gap).

* The cash in hand and current account deposits are not subject to re-pricing, Hence these have been ignored.

2.

Calculate the amount of repricing assets as per the standard gap method in repricing assets and liabilities.

a. 300 Cr
b. 450 Cr
c. 650 Cr
d. 800 Cr

Ans – c

Call money 500 * 50% = Rs.250cr + Cash credit 400 * 100% = 400cr Total = 650cr

3.

Calculate the amount of repricing liabilities as per the standard gap method in repricing assets and liabilities.

a. 300 Cr
b. 450 Cr
c. 650 Cr
d. 800 Cr

Ans – b

SB 500 * 10% = 50cr + FD 500 * 80% = 400cr Total = 450cr

4.

In which type of accounts of NRI, a joint account can be opened with residents?

a. FCNR
b. NRE
c. NRO
d. Any of the above

Ans – c

5.

A derivatives contract cannot exist without an

a. Exchange
b. Underlying be it equity, interest rate etc.
c. increase in volatility
d. increase in arbitrage

Ans – b