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Banking Financial Service Management

Banking Financial Service Management

Presented By R.JothiVel MBA,.

Contents

Application Of Bank Funds

Bank Investment and Function

Bank Lending and Function

Types Of Bank Lending

Company L/O/G/O

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The application of is part of funds statement which shows the various uses of bank funds.

Banks undertake a wide of activities, which play a critical role in the economy of a country.

In addition they provide a smooth functioning payment system that allows financial and real resources to flow relatively freely to their highest return uses.

Banks are important source of funds for small borrowers who often have limited access to other sources of external finance.

Introduction Of Application Of Bank Funds

Bank Investment

RBI require lenders to maintain a portion of their deposits in liquid asset. These liquid asset can be cash, gold and goverment securities. SLR ratio set by RBI based is monetary police

SLR Investment

Non-SLR Investment

Current SLR Is 22% Decreased from 22.5%

It is the bank Invest in various capital market instrument

such as stock & bonds issued by govrment and public company and mutual fund units

Function Of Bank Investment There are three main objective of investment like

safety, growth and income. Every investor with specific objectives in mind

and each investment has its own unique set of benefits and risk.

Importance Function Of Investment;

1. Safety

2. Growth

3. Income

4. Other Objectives• Tax Exemption• Liquidity

Bank Lending

The primary function of a bank receive deposits and loans

The majority of funds are used for lending The Lending accompanied by risk Loans provide specific time period short term

loan but term loan i.e loans for more than a year granted

The borrower may be give entire amount in lump sum or installment

Loans Granted Against Of securities

Commodities Financial Instrument Real Estate Automobiles Document Of Title

Profitability

Margin Money

Principles Of Lending

Character Of The Borrower

Liquidity

Security

National Interest

Object Of Loan

Safety Diversification

Principles Of Bank Lending Policy

Types Of Lending

Fund Based Lending

Non Fund Based Lending

Asset Based Lending

Types Of Lending

Fund Base Lending

On the basis of fund based lending bank commits the physical outflow of funds.

Fund position of the lending bank get affected.

Types Of Fund Based Lending; Loans Cash Credit Overdraft Purchase of bill of exchange

Loans• A loan is a kind of advance made with or without

securities.• It is given for a fixed period at an agreed rate of

interest.• Repayment may be installment or at expiry of certain

period.• Loan may be demand loan or a term loan• Demand loan is payable on demand, it is short term

loan to meet the working capital requirement of business.

• Term loan is medium and long term loan.• Medium term loan repayable within 1 to 5 years.• Long term loan repayable after 5 years.

Cash Credit •It is popular method bank lending in India.•Under the cash credit system a limit called the credit

limit is specified by the bank.•A borrower is entitled to borrow the up to the limit, it is

granted against security of tangible and guarantee.•The borrower can withdraw money any number of time

up to the limit.•Bank charge the interest on the actual amount

withdrawn and period of such amount is withdrawn.•The cash credit facility is granted against the pledge or

hypothecation of stock or marketable instrument ,or personal security.

•Cash credit is most favorable mode of borrowing by commercial and industrial enterprise in India.

Overdraft

The bank allow the customers to overdraw its current deposit account within a specific limit.

Interest is charged only on the amount of drawn and not on the whole amount sanctioned.

The bank obtain written request from the customer .

He should also settle the terms and condition and rate of interest chargeable.

It is usual to obtain a promissory note from the customer to cover the overdraft.

Bills Purchase and Discounted

Discounting bills refers to an act of selling of a bill to obtain payment for before its maturity.

The bank provides the customer with facility of purchasing their bills receivables.

The bank permit the customer to discount his bills receivables and have value of the bills credited to his accounts.

The bank charges discounting charges on the face value of the bills

The bill of exchange time may be 3 to 6 months

Non-Fund Based Lending The lending bank does not commit any physical

outflow of funds The non fund based lending can be made by the banks

in two forms.

Types Bank Guarantees

Letter Of Credit(Domestic& Foreign)

Bank Guarantees A bank guarantee is a promise from a bank or other

lending institution that if a particular borrower defaults on a loan, the bank will cover the loss. Note that a bank guarantee is not the same as a letter of credit.

How it works/Example: Let's assume Company XYZ is a small, relatively

unknown restaurant company that would like to purchase $3 million of kitchen equipment.

The equipment vendor may require Company XYZ to provide a bank guarantee in order to feel more confident that it will receive payment for the equipment it ships to Company XYZ.

Con…

To obtain this bank guarantee, Company XYZ requests one from its preferred lender (usually the bank with which it keeps its cash accounts). The lender provides the guarantee in writing, which is then passed on to Company XYZ and its vendor. Company XYZ's lender essentially becomes a co-signer on the purchase contract with the vendor

Letter Of Credit(Domestic&Foreign) A letter of credit is a written undertaking issued by

the buyer(opener) bank(opening bank) to the seller (beneficiary) to reimburse the cost of goods and services supplied to the buyer against production document stipulated therein within a specific time, at a specific place and up to the specific amount to a specified bank (reimbursing bank) provided the documents submitted are in strict conformity with the term and condition of LC

Buyer , seller and issuing banks are in the same country, such credit are domestic LC

In the foreign LC the buyer will be in one country, the seller will be in another country and the amount will be denominated in a foreign currency, i.e., either in the seller currency or a third country ..currency

Asset Based Lending

"asset-based lending" and "asset financing" refer to the same thing. Asset-based lending generally refers to a business using its assets as collateral for a loan. If the loan is not repaid and falls into default, the lender may seize and sell the collateral to pay off the loan amount.

Types Project Finance Securitization

Project Finance

Defined by the International Project Finance Association (IPFA) as the following: 

The financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project debt and equity used to finance the project are paid back from the cash flow generated by the project.

Securitization

Securitization means the conversion of existing or future cash in-flows of a person into tradable security Which then may be sold in the market.

The cash in-flow from financial assets such as mortgage loans ,automobiles loans, trade receivables , fare collection become the security against which borrowing raised.

According to Oxford Dictionary, “Securitization means to convert an asset (specifically loan) into marketable securities for the purpose of raising cash or funds”.

Thus the process of securitization involves pooling of asset and selling these to investors through a specialized intermediary created for the purpose. .

Examples Of Securitization Debt,

City Bank carved out car loan portfolios to ICICI Bank

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