banking for all

7/30/2019 BANKING FOR ALL

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BANKING FOR ALL M.RAMKUMAR

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CONTENTS


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Acceptance of deposits of money from the public for the purpose of lending or investment.

> The main business of banks is Acceptance of deposits and lending, the banks have now

spread their wings far and wide into many allied and even unrelated activities like

issuing purchasing and selling of etc., providing and dealing in stock, funds, shares, debentures, debenture stocks,

bonds, securities and investment of all kinds

Buying, selling and dealing in (Gold market) activities businesses

- Deposits- Loans- Insurance- Mutual fund- Depository services


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Primary functions Secondary functions

Savings deposit Overdraft Transfer of funds Drafts

Fixed Deposits Cash credit Periodic payments Lockers

Current deposits Loans Collection of cheques underwriting

Recurring Deposit Discounting of Bills Portfolio Management Project reports

Periodic collections Social welfare programs

Other agency functions Other Utility functions

Interest income and non-interest income

Interest Incomeo Interest raised by lending (Loan Interest)

Non-interest incomeo Exchange or commissionso Profit on sale of Investmentso Profit on revaluation of investmentso Recovery in written off accountso Others


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Associated Terms:

Net interest income

The excess revenue that is generated from the spread between interest paid out on deposits and

interest earned on assets.

= Interest earned-Interest paid out

Investment returns Interest exposure

= ---------------------------------

Average interest earning assets

Any income generated out of a transaction which does not actually involve the funds of the

banks can be considered as fee based income.

Fee based income by offering services such as

Trade finance (Export & Import business)

Debt syndication (Debt arrangement for corporate projects) Treasury (foreign exchange requirements of clients) Cash management services (electronic mode of payment cash web channel)

Merchant appraisal of projects Acquisition / Sale of assets Business valuation Pre bid advisory for PPP projects

Dividends Interest from banks Bands interest payments Profits from selling units


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Mutual funds Banc assurance (Life insurance) Depository services

In order to spread banking to all the citizens and to take the power from the hands of few

businessmen.

Bank customers may access their funds and other simple transactions from any memberbranch offices

In other words- Group of networked bank branches-Centralized online real time exchange

CASA ratio is the ratio in current and savings account to its total deposits.

If high CASA ratio, banks get more money at low cost since current account dont have interest

rate and savings account have less rate of interest.

Deposits of CASA

-------------- = CASA Ratio

Total Deposits

PCR is the ratio of provisions held to Gross NPA

Earnings before interest & tax


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The proportion of loans / assets created by banks from the deposits received

Participates in many kind of banking activities and in both commercial bank and an investment

bank

(Assists in raising capital through underwriting)

Bank club transactions together and only the net amount is transferred

6 times / day on weekdays 3-times / day on Saturdays

The beneficiary bank has to credit the beneficiary Account within 2 hours of receiving the fund

transfer message

Above Rs. 2 lacs

NEFT RTGS ECS Net banking Mobile banking

Regular source of income (To get regular repayment) Third party security, if required Collaterals like Land, building, gold, NSC, LIC policies Loans can be give against term deposits


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Possibility of sustainable growth and income ( In order to decide whether the borrower can repay

the amount or not)

Assess the details of how you will deliver a product or service

Identifying market competition Potential markets Present Anticipated future potential sales projections

Startup capital required Sources of capital Returns on investment

Household goods like furniture & appliances Jewelry Intellectual property Bank notes Bills of exchange

Land and building Other property bound to its location

The cash credit is given against the security of Stocks and book debts.

A certain amount is sanctioned as overdraft which can be withdrawn within a certain period of

time say three months or so.


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2. FINANCIAL INCLUSIONFI means include the people, hitherto excluded from the financial system. To be done at both

ends. (Deposits and advances). To implement and to give banking for all citizens, banks have

the model of BC can open no frills

account, building Ultra small branches in remote villages to provide banking services to the

villages are the bank initiatives to achieve the goal of banking for all.

By means of

No frill / basic savings account General purpose credit cards Overdraft facilities for SB accounts Smart cards (Biometric Smart cards)

campaign Financial literacy initiatives

New pension scheme

Nil or very low minimum balance Low charges to such account Limited services to such account

Micro credit is defined as provision of thrift, credit and other financial service and products of

very small amount to the poor in rural, semi urban and urban areas for enabling them to raise

their income levels and improve living standards. e.g. SHG and bank linkage

Any one public sector Bank is designated as lead bank in every individual district. It coordinates the activities of all banks in those districts to avoid duplication of bank

works, to ensure same person not getting loan from different banks and to ensure

benefits of banking to every section of people


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Operated under lead bank Scheme Each semi urban and rural branch allotted a specific area (Cluster of village) to implement

banking Scheme

PSBs were directed to grant at least 1 % of their total deposits of previous year to weakersections of the society at a concessional rate of 4%

40% of loans to SC/ST is compulsory under this scheme

Persons trained from government programs were provided loans Self employment

Priority sectors are those sectors which substantially contribute to national income but get less

credit from banking sector

- of adjusted net bank credit or credit equivalent amount of off- Balance sheetexposure OBE, whichever is higher

- Sub targetso

13.5%- Direct lending 4.5% Indirect lending

o 10% for weaker sectionsFor s PSL is 60% - Shortfalls will be deposited in NABARD rural infrastructure development

fund

For -PSL is 32% - 10% MSE

- 12% Export sectors

MSE upto Rs. 1 Cr. Housing loan upto Rs. 25 lacs in Area where population is more than 10 Lacs

Rs. 15 lacs in Area where population is more than 10 Lacs


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Education loan Rs 10 lacs InlandRs. 20 Lacs Abroad

OD upto Rs. 50000 for no frill accounts State sponsored organization for SC / ST Solar Weaker sections

To operate within maximum of three geographically contiguous districts with HO/ Regd. Office

located at a centre within the area of operation of the bank.

Subject to prudential norms (CAR)

To promote rural savings and provide credit for viable economic activities in the local areas.

Central govt. : State govt. : PSB50 : 15 : 35

Working in all states except Goa and Sikkim Provides credit and other facilities to agriculture and non agricultural productive activities

in rural areas


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3.NPANPA is an advance where interest and /or installment of principal remain overdue for a period of

more than 90 days.

In case of agriculture

Short term crops 2 Harvest season Long term crops 1 Harvest season

Overdue for more than 90 Days

Short term crops 2 Harvest season

Long term crops 1 Harvest season

Gross NPA is advance which is considered irrevocable, for which bank has made provisions and

which is still held in banks book of accounts

Standard Asset Not an NPA

Sub standard AssetAs NPA, not exceeding 12

months

Doubtful AssetAs NPA, more than 12

months

Loss Asset

NPA which dont have

security. Amount has not

been written off, wholly or

partly


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Net NPA = Gross NPA (Balance in interest suspense account + claims received and held

pending adjustment + Part payment received and kept in suspense + Total

provisions held)

A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or

earnings. (If the borrower borrows money from more the one Bank / institution then he needs to

subordinate the security given to other bank/institution)

- DPA is an agreement that allows you to pay off your past due balance by dividing theamount owned into equal monthly payments.

- You may be allowed upto one year to pay off your past due amount.

Setup in Jan 2001 For curbing growth of NPSs For exchange of information between banks and FIs

Securitization and reconstruction of financial assets & enforcement of security Interest Act-2002

(To recover NPA SARFAESI act is used)


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4.RBI

1. Monetary policy regulations2. Banker to banks3. Issuer of currency4. Banker to government5. Foreign exchange reserves management6. Market operations7. Foreign exchange management8. Financial regulation & supervision9. Payment & settlement systems

The bank rate or the discount rate is the rate fixed by the central bank (RBI) at which it

rediscounts first class bills of exchange and government securities held by commercial banks.

(Short term loan to adjust reserves of the bank)

The sale and purchase of securities, bills and bonds of government as well as private financial

institutions by the RBI (To increase / control the money supply)

Banks need to keep certain percentage of their net time and demand deposits with RBI. To have

effect in credit limit. (More CRR less money with banks)

Banks are required to keep certain percentage of net time and demand deposits in their vault

itself. It need not be deposited with RBI. (The reserve can be cash, gold, bonds)


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Short term credit control measure To absorb the excess liquidity (money supply)

Rate at which banks borrow from RBI (By mortgaging their securities)

Rate at which RBI borrows from the commercial banks. Credit creating capacity of banks will come down, if the rate is increased by RBI.

Base rate is the minimum interest rate of a bank below which it cannot lend.

Each bank will have its own base rate.

Except DRI (Differential rate of interest) advances, loans to banks own employees and loan to

bank depositors against their own deposits (e.g.- Loan against fixed deposits)

BPLR is the interest rate that commercial banks normally charge their most credit worthycustomers. Banks may lend money below BPLR to their prime borrowers.

As per RBI, BPLR can be scrapped and can be replaced with base rate which is much moretransparent and below which bank cannot lend.

Banks can borrow funds up to 2% of their net demand and time liabilities and this can bewithin the SLR.

100 basis point above repo rate

Not a pure monetary instrument RBI issues government securities to absorb excess liquidity Ministry of finance pays the interest


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CRAR or CAR is a ratio of banks capital to risk weighted assets

Tier 1 Capital- Core capital, permanent and for meeting losses

+ Paid up capital+ Statutory reserves

+ Disclosed free reserves

+ Capital representing surplus arising out of sale of proceeds of assets

- Losses, Intangible assets, Equity investments in subsidiaries

Tier 2 Capital Less permanent and

+ Undisclosed reserves

+ General provision and loss reserves (upto 1.25% of risk weighted assets)

+ Cumulative perpetual preference shares (fully paidup)

+ Revaluation reserves (reckoned at a discount of 55%)

- Hybrid debt capital instrument

- Subordinate debts (Unsecured redeemed bonds)

Regulated by RBI Regulation of money supply and interest rates To control inflation and stabilize currency


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Implies that the weak banks place their funds only in the short term in risk free assets.

Market for government and semi government securities backed by RBI

That has claim over capital, profit & loss.

That has entitlement to a or like that of

interest on bonds.

- Also like bond but secured- Surety may be plant, machinery or building

- Have no surety- Regardless of profit/ Loss holder is entitled to receive interest amount

Underwriter means a financial intermediary who agrees to purchase unsubscribed portion of

issued capital.

Venture capital companies provide capital to companies that produce new products based on

innovations and to new industries.


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Merchant banks manage and underwrite new issues, provide consultancy and corporate advisory

services for corporate clients on raising funds and other financial aspects

Business of issue management

Mutual funds mobilize the savings of the people and invest in stock market securities.

Certificate of deposits are issued by commercial banks & Financial institutions to raise additionalfund.

- Multiples of 25 Lacs- Min Rs. 25 Cr.- Banks maturity period -3 months to 1 year- Financial institution maturity period 1 to 3 years

CPs are issued by corporate, primary dealers and all India financial institution funds.

- 5 lac or multiples- Min 1 Cr.- Maturity period 3 months to 6 months

Factoring is a financial transaction whereby a business sells its accounts receivable to a third

party (Called a factor) at a discount.

AMC is an investment management firm that invests the pooled funds of retail investors in

securities in line with the stated investment objectives.


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Assets of the fund Liabilities and outstanding expenses

NAV = ------------------------------------------------

Number of fund units

Consistent increase in the price of goods and services Caused by Increased money supply Effects Depreciation of rupee value

Regulated by government To achieve Goals of full employment, price stability and economic growth Through taxation and government spending

BOP = Money into country Money going out of the country

BOP crisis = When a country has a large budget deficit, it has difficulty in maintaining fixed

exchange rate, ultimately facing BOP crisis & unable to pay for the debts outside the country

In India we faced BOP crisis during 1991 during which we depreciated the value of rupee and

implemented LPG policy ( iberalization, rivatization and lobalization)

Decline in GDP for 2 or more consecutive quarters Accompanied by Drop in stock market Increased unemployment Decline in housing market

- Investors fear to invest


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ASBA is an application containing an authorization to block the application money in the bank

account, for subscribing an issue. If an investor is applying through ASBA, his application money

shall be debited from the bank account only if his application is selected for allotment after the

basis of allotment is finalized or the issue is withdrawn / failed.

In order to ensure continuity of business operations during business disruptions / disasters on

account of process disruptions, technology breakdown, power failure, natural calamities, fire

riots etc.,

Dated govt. securities are long term securities and carry a fixed or floating coupon

(Interest rate) Which is paid on the face value payable at fixed time periods (usually half

yearly)

Zero coupon bonds are bonds issued at discount face value and redeemed at par. Payment of principal amount is made in installments over a given time frame It meets the needs of investors with regular flow of funds and the need of govt. when it

does not need funds immediately.

Dont have fixed coupon rate Coupon is reset at pre announced intervals

Issuer can have option to buy back (call option)

Or

Investor can have option to sell the bond (put option) to the issuer during the currency ofthe bond

Interest rate is fixed percentage over the wholesale price index Effective hedge against inflation


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IFSC - Indian Financial system code (Used to send or receive funds within India)

MICR Magnetic ink character recognition (9 digits)

SWIFT Society for worldwide Interbank financial telecommunication (Used to send or receive

funds worldwide)

ASBA Application supported by blocked amount (For IPO issues)

BCSBI Banking Codes and standards board of India

ECB External commercial borrowings

HNI High net worth individuals (Few branches will have separate branches for HNI)

NEFT national electronic fund transfer

RTGS Real time gross settlement


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1. Tell about yourself2. What is banking?3. Why do you prefer banking as career?4. What are your hobbies?5. Which news paper do you read daily?6. What is in news today?7. Recent News about banking and economy8. About your graduation9. About your previous work experience, if any10.About your hometown11.Family background12.Your achievements13.Your strength and weakness14.What will be your commitment towards bank15.Financial inclusion16.Merger of banks-your opinion17.Private vs public sector banks18.Role of public sector banks in Indian economy19.GDP of India (Get details of contribution from Primary, Secondary and tertiary sector)20.Strength and weakness of India21.You are the manager of the branch. One person is approaching you for loan. What are the

aspects you will see first?

For your valuable feedback:

Mail to : [email protected]

Mobile : 9944339812
mailto:[email protected]:[email protected]:[email protected]


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