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JAIIB AFM study materials
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JAIIB AFM: Principles & Practices of Banking

JAIIB AFM · Work through your exam, one topic at a time.

All guide sections

Principles & Practices of Banking

What PPB tests

Principles & Practices of Banking examines how Indian banks are regulated and how they operate day to day: the RBI's powers, the categories of banks, statutory reserve requirements, priority sector lending, financial inclusion, KYC/AML and customer-service standards.

Core rules

  • Regulator and statutes. The RBI Act, 1934 creates the RBI and Section 42 empowers it to prescribe CRR; the Banking Regulation Act, 1949 (BR Act) governs banking companies, and Section 24 requires SLR holdings in cash, gold or approved securities.
  • Scheduled vs non-scheduled. A bank is scheduled when listed in the Second Schedule of the RBI Act: paid-up capital and reserves of at least ₹5 lakh, and satisfaction of the RBI that its affairs are not conducted in a manner detrimental to depositors' interests.
  • Reserve ratios. Both CRR and SLR apply to net demand and time liabilities (NDTL). CRR is presently 4.00% and SLR 18.00% of NDTL - these are notified figures, so confirm the prevailing rates.
  • Priority sector. Domestic banks must lend 40% of ANBC (or credit-equivalent off-balance-sheet exposures, whichever is higher), including 18% to agriculture and 7.5% to micro enterprises. Shortfalls are parked with RIDF.
  • KYC/AML. The PMLA, 2002 and the RBI KYC Master Direction require customer due diligence, risk categorisation, enhanced due diligence for politically exposed persons, and suspicious transaction reports to FIU-IND.

Worked example

A bank's ANBC is ₹50,000 crore, so its PSL target is 40% = ₹20,000 crore. It has lent ₹18,500 crore, i.e. 92.5% of target. Because achievement is above the 90% floor, the bank places the ₹1,500 crore shortfall with RIDF (NABARD), earning below-market interest - the shortfall is a cost, not just a statistic.

Traps

Mixing CRR (Section 42, RBI Act) with SLR (Section 24, BR Act); applying the ratios to total assets instead of NDTL; forgetting that weaker-section and small/marginal-farmer sub-targets sit inside the 40%; and assuming an overdue PSL account keeps its PSL classification indefinitely.