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Banking and Insurance Semester 3

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Functions of a Bank

Finance

Marketing

Human Resources

Information Technology

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Structure of the Banking System

Central Bank (RBI)

Scheduled Banks Non Scheduled B

tate Co op Banks Commercial Banks

Indian Foreign

Public Sector Banks Private Sector Banks

SBI and its Subsidiaries Other Nationalized Banks

Regional Rural Banks

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Banking

Retail Banking

Wholesale Banking

Private Banking

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Retail Banking

Accepting Deposits

Opening Accounts Disbursing Individual Loans

Demat Account and Trading Account

Mutual Fund Distribution Insurance Product Distribution

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Wholesale Banking

Corporate Banking

Treasury Management

Risk Management

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Corporate Banking

Relationship Management

Credit Appraisal Cash Management Services

Bank Guarantees

Letter of Credit

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Treasury Management

Treasury

Investments

ADR / GDRInterest Rate Swaps

Treasury OperationsDomestic Transactions

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Risk Management

Client Risk (Creditworthiness)

Industry Risk

Liquidity Management

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Private Banking

Handling Individual Clients

Entertaining HNIs

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General Departments

Human Resources

Information Technology Legal

Credit Cards

Back office Operations

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Case

2 brother Amit Verma and Namit Verma areliving in the USA carrying out their import exportbusiness.

Their parents are living in India along with theirother brother Chirag Verma who invests heavilyin the stock market.

Their parents have retired and keep all their

savings in the form of cash at home. Their parents are planning a trip to the USA to

visit them.

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Banks Balance sheet

Liabilities are the sources of the funds

Assets are the uses of the funds

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Liabilities

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Capital

Authorized Capital

Issued Capital Subscribed Capital

Called up Capital

Paid up Capital

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Reserves and Surplus

Statutory Reserve

As per Banking Regulation Act 1949 part ofthe profit is to be transferred to this reserve

Capital Reserve

Surplus arising out of revaluation

Share Premium

Balance in P & L A/c.

Profit after appropriation

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Deposits

Demand Deposits

Term Deposits FCNR Deposits

Deposits from other banks

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Borrowings

Borrowings from within India

Refinance or borrowing from RBI

Borrowings from Commercial Banks

Borrowings from IDBI, NABARD, Exim Bank

Borrowings from Abroad

Overseas borrowings by Indian branches

Overseas borrowings by foreign branches

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Other Liabilities and Provisions

Bills Payable

DD, TT, TCs, etc

Inter Office Adjustment

Interest Accrued

Interest accrued but not due

Others Provision for Income tax

Outstanding charges like rent etc.

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Assets

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Cash and Bank Balance

Cash and Balance with RBI

Cash in Hand Foreign currency and cash

Balances in overseas branches

Balance with RBI

CRR

Balance in currency chest

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Amount held by bank in current accountand fixed deposit with other banks

Money at call and short notice

Cash and Bank Balance

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Investments

Government Securities

Securities issued by Central and State Govt.

Approved Securities

SLR Securities

Shares

Investment in Subsidiaries

Bonds/Debentures

Investment in Gold,CPs,CDs.

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Loans and Advances

Three formats are required

Types or nature of advances

Secured and unsecured advances

Sectorial credit advances

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Types / Nature of Advances

Bills Purchased and discounted

Cash Credit Overdraft

Demand loan

Term loan

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Secured / Unsecured Advances

Secured by tangible assets

Covered by bank/ Govt. guarantee

Unsecured advances

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Sectorial Advances

Priority sector

Public sector

Advances made to other banks

All other advances

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Fixed Assets

Land and Buildings

Furniture and Fixtures Computers

Vehicles

All other fixed assets

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Other Assets

Inter office adjustment

Interest Accrued

Tax paid in advance

Stationery and Stamps

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Contingent Liabilities /Off Balance sheet items

Liability which may or may not arise

Claims against bank not acknowledge as debt

Liability for partly paid investment

Outstanding forward exchange contract

Guarantees given by bank, in & outside India

Currency / Interest rate swaps

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Income Statement

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Interest Earned

Interest on advances

Dividend and interest income frominvestment

Interest on balances with RBI and interbank funds

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Other Income

Commission, exchange and brokerage

Profit on sale of investment

Profit on revaluation of investment (Any losswill be shown as deduction)

Profit on sale of land building & other assets

Profit on exchange transaction Miscellaneous income

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Interest Expended

Interest on deposit

Interest on RBI / inter bank borrowings

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Operating Expenses

Payment to and provisions for employees

Rent, taxes, lighting

Printing and stationery and Advertisement

Depreciation

Directors fees and Auditors fees and Law

charges

Postage, Telephone etc

Repairs and maintenance Insurance

Other expenses

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Indian Banks Balance Sheet

Liabilities

Capital

Reserves and Surplus

Deposits

Borrowings

Other Liabilities andprovisions

Contingent Liabilities

Assets

Cash and Balances withRBI

Balances with banks andmoney at call and shortnotices

Investments

Advances

Fixed Assets

Other Assets

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Income Statement

Income

Interest Earned

Other Income

Expenses

Interest Expended

Operating Expenses

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Ratios

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Operating Efficiency

Total Operating Expenses

---------------------------------------- X 100Total Assets

Lower ratio shows banks efficiency

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Non Interest Income / Net TotalIncome

Non Interest Income

------------------------------------- X 100

Net Total Income

Net Total Income = Net Interest Income + OtherIncome

Shows the share of non interest income to totalincome

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Return on Equity (ROE)

Net Profit

--------------- X 100Equity

Shows the return to the shareholders

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Return on Company / Assets

Net Profit

------------------------------------------- X100Total Assets / Total Liabilities

Shows how well the banks is using theassets to generate profits

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Cost of Borrowed Funds

Interest Expenses

------------------------------------------- X 100Deposits + Borrowings

Higher the ratio higher is the cost of funds

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Earnings Per Share (EPS)

Net Profit

---------------------------Number of Equity Shares

Shows the earning per share

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Price / Earnings Ratio (P/E)

Current Market Price

-------------------------------------

EPS

Helps in determining the true value of theshare

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Net Interest Margin (NIM)

Total Interest Income Total Interest Expenses

-------------------------------------------------------- X 100

Total Assets

Shows the net interest income compared

to the total assets

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Ratio Analysis

Operating Efficiency

Non Interest Income / Net Total Income

ROE

ROA

Cost Of Funds

EPS

P/E

NIM

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Concepts

Cash Reserve Ratio (CRR)

Statutory Liquidity Ratio (SLR)

Primary Lending Rate (PLR)

Repo Rate and Reverse Repo Rate

Inter Bank Call Money Market

Capital Adequacy Ratio (CAR)

Cheque

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Concepts

Cash Reserve Ratio (CRR) 5%

Statutory Liquidity Ratio (SLR) 24%

Primary Lending Rate (PLR)

Capital Adequacy Ratio (CAR) 9%

Inter Bank Call Money Market

Repo Rate and Reverse Repo Rate

Cheque

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Repo 4.75%

Reserve Bank of India (RBI) Bank

Money

G Secs

Money

G Secs

Reserve Bank of India (RBI) Bank

G Secs

Money

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Reverse Repo 3.25%

Reserve Bank of India (RBI) Bank

Money

G Secs

Money

G Secs

Reserve Bank of India (RBI) Bank

G Secs

Money

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Cheque

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Cross Cheque

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Bank Nifty

Amount to be invested max Rs 20,00,000 Minimum investment Rs 4,00,000 in each stock

(Min 5 stocks and max 12 stocks). From 2nd July to 8th July 2009. 6th July allowed to buy/sell stocks. Aim is to outperform the Bank Nifty and the Nifty. Highest group gets 12 lowest group gets 2. Presentation 6 marks. Bonus Marks for outperforming Bank Nifty and

the Nifty

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Reserve Bank of India (RBI)

Regulator

Banker to the Government

Interest Rates

Currency

Foreign Exchange

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Measures Taken by

India to combat theSub Prime Crisis

FII b i ll d f h

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FII money being pulled out of thecountry.

Measures taken by RBI to intervenein the currency market.

Impacted the export market.

Made imports more expensive.

Higher fiscal deficit.

Corporate could not raise money inthe International market.

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Tax Rates

Income tax threshold has been raised toRs. 1.60 lakhs from 1.10 lakhs.

For women there is no tax for incomebelow Rs 1.90 lakh from 1.45 lakhs

Senior citizens need not pay tax forincome below Rs 2.40 lakh from 1.95lakhs.

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Monetary Policy & Fiscal Policy

CRR, SLR, Repo and Rev Repo Ratecuts.

RBI ensured that their were PLR cuts in

PSU banks at least.

Oil Bonds were treated as SLRinvestments.

Increase the FII limit for corporate bondsfrom $3bn to $6bn