This presentation would help you understand the components that help in determining Priority Sector Exposures for banks in India. One of the key things that one must learn to calculate the priority sector exposure is to know the Adjusted Net Bank Credit. And the second one is Off-Balance Sheet items. This presentation gives a quick overview of both these concepts. For more information, you could write to connect@sineedge.com. We invite you to explore our website www.sineedge.com. We are management consultants specialising in the Banking and Finance Domain.

1. What is Adjusted Net Bank Credit?
What are ‘Off – Balance Sheet’
exposures?
Critical terms used for understanding
Priority Sector Lending
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2. Adjusted Net Bank Credit
To Understand ANBC, we need to
understand certain other terms
first…..So here we go….

3. Bill discounting
3
For e.g. a customer of a Bank, has purchased a service or a
product from his supplier. The supplier has raised a bill to the
customer for the services provided. (A bill is a document like a Bill
of Exchange or a Promissory note and is payable on a due date
and / or on demand).
Bill discounting is a process whereby a Bank
(a) Accepts a Bill before the due date and
(b) credits the value of the bill after a discount charge to the
customer’s account.
The transaction is practically an advance against the security of
the bill and the discount represents the interest on the advance
from the date of purchase of the bill until it is due for payment.

4. 4
Bill Purchasing
• Banks, sometimes, purchase bills instead of discounting them.
• The bankers purchase bills, which are accompanied by
documents of title to goods such as bills of landing or railway
receipt.
• In such cases, the banker grants loans in the form of overdraft
or cash credit against the security of the bills.
• The term 'Bills Purchased' implies that the bank becomes the
purchaser/owner of such bills. But in almost all cases the bank
holds the bill only as a security for the advances.

5. Bill Rediscounted
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• Rediscounting refers to the act of discounting a short-term
negotiable debt instrument for a second time.
• Banks may rediscount these short-term debt securities to
assist the movement of a market that has a high demand
for loans.
• When there is low liquidity in the market, banks can
generate cash by rediscounting short-term securities. A
central bank's discount facility is often called a discount
window.
• The term comes from the days when a clerk would go to a
window at the central bank to rediscount a company's
securities.

6. Held To Maturity (HTM)
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Any investment by scheduled commercial
banks in the long-term bonds issued by
companies engaged in executing
infrastructure projects and having a minimum
residual maturity of seven years may be
classified under HTM category.
The intention of the bank should be to hold
the bonds till maturity.

7. Statutory Liquidity Ratio (SLR)
7
• SLR Refers to the amount that the commercial banks
are required to maintain in the form of cash, gold or
investments in govt. approved securities before
providing credit to the customers.
Approved securities refer to, bond and shares of
different companies.
• SLR is measured as a % of total demand and time
liabilities.

8. Statutory Liquidity Ratio (SLR)
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Statutory Liquidity Ratio is determined and maintained by the
Reserve Bank of India in order to
• Control the expansion of bank credit.
• Ensure the solvency of commercial banks.
• Compel the commercial banks to invest in government
securities like government bonds.
Current SLR is 23% as prescribed by RBI.

9. BANK CREDIT IN INDIA
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Calculation is done as prescribed in item No.VI of Form ‘A’ (Special Return
as on March 31st) under Section 42 (2) of the RBI Act, 1934.
Bank Credit in India = Sum of the following
• Total Loans, cash credits and overdrafts provided by the bank in India
• Inland Bills purchased and discounted:
 Bills Purchased (Full amount paid and Interest deducted when actual
payment comes, typically for sight drafts)
 Bills Discounted (Interest deducted upfront and maturity calculated as per
tenor)
• Foreign Bills purchased and discounted
 Bills Purchased (Full amount paid and Interest deducted when actual
payment comes, typically for sight drafts)
 Bills Discounted (Interest deducted upfront and maturity calculated as per
tenor)
Note – Bank Credit in India excludes Inter-Bank Advances

10. *ANBC – ADJUSTED NET BANK CREDIT
STEPS IN CALCULATION OF ANBC
Bank Credit in India (As prescribed in item No.VI of Form ‘A’ (Special
Return as on March 31st) under Section 42 (2) of the RBI Act, 1934.
Bills Rediscounted with RBI and other approved Financial Institutions
Net Bank Credit (NBC)
Bonds/debentures in Non-SLR (Statutory Liquidity Ratio) categories
under HTM (Held to Maturity) category + other investments eligible
to be treated as priority sector.
ANBC
10

11. 11
Calculate the ANBC for the bank assuming the following:
- Term Loans = Rs 200 Cr
- Cash credit = Rs 100 Cr
- Inland Bills Purchased = Rs 50 Cr
- Foreign Bills Discounted = Rs 100 Cr
- Bills rediscounted = Rs 60 Cr
- Investment in Debentures of an Infrastructure company
having a balance maturity period of 10 years which are
HTM = Rs 200 Cr
EXERCISE 1 ON ANBC

12. SOLUTION TO EXERCISE 1 ON ANBC
(I) BANK CREDIT IN INDIA = (200+100+50+100) = 450 Cr
(II) BILLS REDISCOUNTED = 60 Cr
(III) NET BANK CREDIT = (I) – (II) = 450-60 = 390 Cr
(IV) DEBENTURES HELD UNDER NON SLR UNDER HTM CATEGORY = 200 Cr
(V) ADJUSTED NET BANK CREDIT = (III) + (IV) = 590 Cr
12

13. Off – Balance Sheet exposures

14. OFF BALANCE SHEET EXPOSURES
• Off Balance Sheet item, refers to an asset or debt that
does not appear on a bank’s balance sheet.
• Items that are considered off balance sheet are
generally ones in which the bank does not have legal
claim or responsibility for.

15. OFF BALANCE SHEET EXPOSURES
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EXAMPLES of Off Balance Sheet items :
1. loans issued by a bank are typically kept on the bank's books. If those loans are
securitized and sold off as investments, however, the securitized debt is not kept
on the bank's books. One of the most common off-balance sheet items is
Collateralised Debt Obligations (CDOs).
2. Contingent Liabilities
3. Direct credit substitutes in which a bank substitutes its own credit for a third
party, including standby letters of credit
4. Irrevocable letters of credit that guarantee repayment of commercial paper or tax-
exempt securities
5. Risk participations in bankers' acceptances
6. Sale and repurchase agreements
7. Asset sales with recourse against the seller
8. Interest rate swaps; interest rate options and currency options, and so on

16. You just picked up some information about some technical
definitions in Banking….
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