Financial Market Integration

Financial matters include all functions which involve financial matters. Integration means all acts or activities combining into one important unit. So according to this Financial Integration means it is a process in which financial markets of neighbouring, regional or global economies are closely linked together.

Various forms of actual financial integration Sharing of best practices

among financial institutions Information sharing among different

financial institutionsSharing of

best technologies among financial institutions

 Firms borrow and raise funds directly in the international capital markets

 Investors directly invest in the international capital markets

Benefits of Financial Integration Efficient capital allocation, Better governance, higher

investment and growth and share risk.

It can also help predict consumption volatility.

It can also provide great benefits for international risk-sharing.

Non Performing Assets

A Non-performing asset  is defined as a credit facility in respect of which the interest and/or instalment of Bond finance principal has remained ‘past due’ for a specified period of time.

Non-performing assets further into the following three categories Sub-standard assets: a sub standard

asset is one which has been classified as NPA for a period not exceeding 12 months.

Doubtful Assets: a doubtful asset is one which has remained NPA for a period exceeding 12 months.

Loss assets: where loss has been identified by the bank, internal or external auditor or central bank inspectors. But the amount has not been written off, wholly or partly.

The Problems caused by NPAs

Bank shareholders are adversely affected.

Depositors do not get rightful returns and many times may lose unsure deposits.

Banks may begin charging higher interest rates on some products to compensate Non-performing loan losses.

Bad loans imply redirecting of funds from good projects to bad ones.

Narasimham Committee Reform

Narasimham committee was formed by two experts committee under the chairmanship of Narasimham. They submitted their recommendations in the 1990s in reports widely known as the Narasimham Committee-I (1991) report. From the 1991 India economic crisis to its position of third largest economy in the world by 2011, India has grown significantly in terms of economic development. So has its banking. During this period, to evolve needs of the sector, the Finance Ministry of Government of India set up various committees with the task of analysing India's banking sector and recommending legislation and regulations to make it more effective, competitive and efficient.

The 1998 report of the Committee to the GOI made the following major recommendations:

Autonomy in BankingReform in the role of RBINon-performing assetsStronger banking systemCapital adequacy and tightening of

provisioning normsEntry of foreign banks

Basel Three Accord

Basel III Accord is a global, voluntary regulatory framework on bank capital sufficiency, stress testing, and market risk. The basic meaning of accord is agreement so it was agreed by the members of the Basel Committee on Banking Supervision in 2010–11, and was scheduled to be introduced from 2013 until 2015. The third instalment of the Basel Accords was developed to give response to the lacking in financial regulation disclose by the financial crisis of 2007–2008. Basel III is introduced to strengthen bank capital requirements by increasing bank liquidity and decreasing banking purchase.

Key principles

Capital requirements The original Basel III rule from 2010 required banks to hold 4.5%

of common equity and in Basel it was 2.5%, of risk-weighted assets. Therefore since 2015, a minimum Common Equity ratio of 4.5% must be maintained by the all banks.

Leverage ratio Basel III introduced a minimum "leverage ratio". This is a non-

risk-based leverage ratio and is calculated by dividing Tier 1 capital by the bank's average total consolidated assets ,sum of the exposures of all assets and non-balance sheet items.

Liquidity requirements  The "Liquidity Coverage Ratio" was supposed to require a bank to

hold sufficient high-quality liquid assets to cover its total net cash outflows over 30 days. 

The Net Stable Funding Ratio was to require the available amount of stable funding to exceed the required amount of stable funding over a one-year period of extended years.

Banking Ombudsman Scheme

Banking Ombudsman is a quasi judicial authority functioning under India’s Banking Ombudsman Scheme 2006, and the authority was created pursuant to a decision made by the Government of India to enable resolution of complaints of customers of banks relating to certain services rendered by the banks. The Banking Ombudsman Scheme was first introduced in India in 1995, and was revised in 2002. The current scheme became operative from 1 January 2006, and replaced and superseded the banking Ombudsman Scheme 2002. From 2002 until 2006, around 36,000 complaints have been dealt by the Banking Ombudsmen.

Type of complaints resolved by banking ombudsman

Non-payment or inordinate delay in the payment or collection of cheques, drafts, bills, etc.

Non-acceptance, without sufficient cause, of coins tendered and for charging of commission for this service.

Non-payment or delay in payment of inward remittances .

Failure to issue or delay in issue, of drafts, pay orders or bankers’ cheques.

Non-adherence to prescribed working hours.Failure to honour guarantee or letter of

credit commitments.

Priority Sector Lending

Priority Sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.

 Priority Sector Lending is an important role given by the Reserve Bank of India to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.

CATEGORIES OF PRIORITY SECTOR

The broad categories of priority sector for all scheduled commercial banks and Priority Sector includes the following categories:

(i)Agriculture(ii)Micro and Small Enterprises (iii)Education(iv)Housing(v)Export Credit(vi) Others and some of the categories

Special Type of Bank Customers

Opening of an account binds the banker and customer into a contractual relationship. Every person who is competent to contract can open an account with a bank. The capacity of certain classes of person, to make valid agreement is subject to certain legal restrictions, as is the case with minors, lunatics, drunkards, married women, undercharged insolvents, trustees, executors, administrators etc. Extra care is also needed for the banker while he deals with customers like public authorities, societies, joint stock companies, partnership firms etc.

Here are some types of customers

Here are some types of customer are-:Minors LunaticsIlliterate persons Married women :Executors and administratorsTrusteesPartnership firmJoint stock companies

Banks – One Stop Financial Service SolutionBanking covers certain types

of areas-:

Asset ManagementInvestment BankingWealth ManagementData WarehousingExchangeBrokerage

Types of Management

Asset Management Online portfolio valuation Performance management system Workflow management

  Investment Banking Internet banking Financial portal   Wealth management Processing system Decision support system Aggregation portals 

Contd.ExchangeOrder management systemDocument management systemTransaction processing and reporting systemMessage format interface  BrokerageE brokerage serviceOnline interface to banksOATS implementation

Digitalisation of Banks

Digitization is the process of converting information into a digital format . In this format, information is organized into discrete units of data (called bit s) that can be separately addressed (usually in multiple-bit groups called byte s). This is the binary data that computers and many devices with computing capacity (such as digital camera s and digital hearing aid s) can process.

Immersed in digital

Digital communication is pervasive; from mobile phones to tablet computers, we are immersed in digital. Recent development of new digital features has led to-:

Improvements in user-experience design through interactive, game-like interfaces that are starting to merge the boundaries between the real and the virtual and bringing data to life through rich visualisations.

Advances in mobile devices and networks, providing new services such as enhanced digital security and the ability to access the Internet from anywhere (partially limited by high international roaming charges).

The rise of social media and collaboration tools, empowering customers and employees, and moving control of the ‘brand message’ from businesses to consumers.

New channel integration technologies, enabling a more seamless end-to-end experience for customers with their bank.