jaiib prin banking mod
TRANSCRIPT
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Welcome to
IIBFs - JAIIB Virtual
Classes
PRINCIPLES OF BANKING
Module A & B
April 15/2008
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Financial System in India
Financial Sector consists of three mainsegments viz.,
1) Financial institutions -banks, mutualfunds, insurance companies
2) Financial markets -money market,
debt market,capital market, forexmarket
3) Financial products -loans, deposits,bonds, equities
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Financial Sector - Regulators
Regulators
Reserve Bank ofIndia
(RBI)
Securities ExchangeBoard of India
(SEBI)
Insurance Regulatoryand Development
Authority
(IRDA)
BanksCapital Markets/
Mutual Funds
Insurance
Companies
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Banking in India
Legal frame work
of
Banks
Banking RegulationAct,1949
Reserve Bank of IndiaAct,1934
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Banking in India
- Banking in India is governed byBR Act,1949 and RBI Act,1934
- Banking in India is controlled/monitored
by RBI and Govt of India- The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporationb) a banking company
c) a cooperative society
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Banking Regulation Act,1949 (BR Act)-
1
- BR Act covers banking companies and
cooperative banks, with certain modifications.- BR Act is not applicable to
a) primary agricultural credit societies b) landdevelopment banks
- BR Act allows RBI (Sec 22) to issuelicence for banks
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Banking Regulation Act,1949 (BR Act)-2
Regulation
Control over
management
Penalities
Suspension
&Winding up
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Reserve Bank of India
Act,1934(RBI Act)-1- RBI Act was enacted to constitute the
Reserve Bank of India
- RBI Act has been amended from time to
time
- RBI Act deals with the constitution,
powers and functions of RBI
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Reserve Bank of India Act,1934(RBI Act)-2
- RBI Act deals with:- incorporation, capital management and
business of banks
- central banking functions- financial supervision of banks and
financial institutions
- management of forex/reserves- control functions : bank rate,audit,accounts
- penalities for violation
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Reserve Bank of India - 1
Reserve Bank of India was established in
1935, after the enactment of the Reserve
Bank of India Act 1934 (RBI Act).
Banking Regulation Act,1949 (BR Act)gavewide powers to RBI as regards toestablishment of new banks/mergers andamalgamation of banks,opening of new
branches,etc BR Act,1949 gave RBI powers to
regulate,superivse and develop the bankingsystem in India
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Reserve Bank of India2
CENTRAL BANK
RBI
REGULATOR SUPERVISOR FACILITATOR
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Money Market Instruments
Inter bank call money/deposit Inter bank notice money/deposit
Inter bank term money/deposit
Certificates of Deposit Commercial Paper
Treasury Bills
Bill rediscounting Repos
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Certificates of Deposit
CDs are short-term borrowings in the form of UPNissued by scheduled commercial banks and arefreely transferable by endorsement and delivery.
Introduced in 1989
Minimum period 7 days and maximum period one
year. FIs are allowed to issue CDs for a periodbetween 1 year and up to 3 years
Minimum amount is Rs 1,00,000.00
Subject to payment of stamp duty under the Indian
Stamp Act, 1899 Issued to individuals, corporations, trusts, funds and
associations
Issued at a discount rate freely determined by themarket/investors
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Commercial Paper
Short-term borrowings by corporates, financialinstitutions, primary dealers from the money market
Can be issued in the physical form (Usance PromissoryNote) or de mat format
Introduced in 1990 When issued in physical form are negotiable by
endorsement and delivery and hence, highly flexible
Maturity is 7 days to 1 year
Unsecured and backed by credit rating of the issuingcompany
Issued at discount to the face value
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Repos
Repo (repurchase agreement) instrumentsenable collateralised short-term borrowingthrough the selling of debt instruments
A security is sold with an agreement torepurchase it at a pre-determined date and
rate Reverse repo is a mirror image of repo and
reflects the acquisition of a security with asimultaneous commitment to resell
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INDIAN CAPITAL MARKET
Indian Capital Market plays an important role in theeconomic development of the country
It provides opportunities for investors to invest in themarket and also to earn attractive rate of return.
It also creates source of funds for the various sectors
National Stock Exchange (NSE) and Bombay Stock
Exchange (BSE) are the major stock exchanges inIndia
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Securities & Exchange Board of India(SEBI)
SEBI was constituted on April 12/1988, andobtained the statutory powers in March,1992
SEBIs functions:
To protect the interests of investors
To recognize the business in stock exchangesand other security markets
To supervise and regulate work ofintermediaries, such as stock brokers
merchant bankers/custodians
depositories/bankers to the issues
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Association of Mutual Funds in India(AMFI)
AMFI is an association as a non profitorganization.
AMFI represents mutual funds in India
and working for healthy growth of theMutual Funds.
AMFI conduct examinations for MF
executives as part of their trainingactivities
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Insurance Regulatory & DevelopmentAuthority (IRDA)
The regulator for insurance business inIndia is IRDA.
IRDA was established in 2000
IRDAs functions: To regulate, promote and ensure
orderly growth of the insurance
business and reinsurance business inIndia
To protect the interests of policy
holders
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Insurance Sector
Insurance Sector inIndia can be dividedinto two mainsections
General Insurance
Life Insurance
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Financial Intermediaries (1)
Mutual Funds- As financial intermediary promotesavings and mobilise funds which are invested in thestock market and bond market
MFs are associations or trusts of public members andassist them in making investments in the financialinstruments of the business/corporate sector for the
mutual benefit of its members. MFs aims to reduce the risks in investments
Mutual funds help their investors to enhance theirvalue by investing the funds in capital market.
Mutual funds offer various schemes: growth fund,income fund, balanced fund,sector wise funds, etc.,
Regulated by SEBI
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Financial Intermediaries (2)
Merchant banking- Another importantfinancial intermediary which manages andunderwrites new issues, undertakesyndication of credit, advise corporate clients
on fund raising Subject to regulation by SEBI and RBI
SEBI regulates them on issue activity and
portfolio management of their business. RBI supervises those merchant banks which
are subsidiaries or affiliates of commercialbanks
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Indian Banking - Significant events 1
Three presidency banks were established in Calcutta (1806) in
Bombay (1840) and in Madras (1843) In the early part of 20thcentury, on account of the Swadeshi
movement a number of join stock banks were established byIndians like Bank of India, Bank of Baroda and Central Bank ofIndia.
In 1921 the three presidency banks were merged and the
Imperial Bank of India was created. During the period 1900 to 1925 many banks failed, and the
Government appointed in 1929 a Central Banking EnquiryCommittee to trace the reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBIcame into existence in 1935 and RBI was nationalised in 1949
The Banking Regulation Act,1949 gave wide powers to RBI toact as the regulator for banks in India
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Indian Banking -Significant events 2
In 1955 State Bank of India became the successor tothe Imperial Bank of India ,under the State Bank ofIndia Act,1955.
In 1959 State Bank of India (Subsidiary Banks) Actwas passed to enable SBI to take over StateAssociated banks as SBIs subsidiaries
In 1969 the Government of India nationalised 14major commercial banks having deposits of Rs.50crore or more
In 1975 Regional Rural Banks were established underRRB Act 1976, which was preceded by RRB
Ordinance in 1975 In 1980 six more commercial banks were
nationalised, with a deposit of Rs.200 crore or more
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Progress of banking in India
In the liberalised, privatised andglobalised environment, banks opeating
in India have diversified their banking
activities by offering Para Bankingfacilities like
Merchant banking/Mutual funds
ATMs/Credit Cards/Internet banking
Venture capital funds
Factoring
Bancassurance
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Classification of Banks-1
Central
Bank
RBI
Public Sector
Banks
New Private
Sector
Banks
Old
Private
Sector
Foreign Banks
Co-operative
Banks
Regional
Rural
Banks
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Classification of Banks-2
PUBLIC SECTOR
BANKS
STATE BANK OFINDIA
SBI
SBI ASSOCIATE
BANKS
NATIONALISED
BANKS
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Functions of Banks - 1CENTRAL BANK
RBI
REGULATOR SUPERVISOR FACILITATOR
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RESERVE BANK OF INDIA
SUPERVISORY & REGLATORY
Issuance of currency notes
Bankers Banker
Lender of the last resort
Credit Control & Monetary Policy
Exchange Control & Forex Management Funds Transfer
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QUANTITATIVE CREDIT CONTROL
QUALITATIVE CEDIT CONTROL
CRR & SLR BANK RATE
OPEN MARKET OPERATIONS
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Functions of Banks - 2
Commercial Banks-Core BankingFunctions
- Acceptance of deposits from public
- Lending funds to public/corporates
- Investing funds in various opportunities
- Collecting cheques/drafts and otherNegotiable Instruments
- Remitting funds
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Functions of Banks-3
Commercial BanksPara BankingServices
Providing safe deposit lockers
Acceptance of safe custody items Acceptance of standing instructions
Offering internet banking facilities
Issuance of credit and other cards
including ATM cards
Offering various products like Mutualfunds,insurance products, merchantbanking services
Acting as executors and trustees
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Commercial BanksDEPOSIT PRODUCTS
CERTIFICATE
FLEXI
RECURRING
FIXED
SAVINGS
CURRENT
DEPOSITS
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Non-Resident Accounts - 1
Rupee accounts
Non-residentOrdinary account
(NRO)
Non-residentExternal account
(NRE)
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Foreign Currency Non-residentDeposit AccountsFCNR (B)
FCNR (B) accounts NRIs,PIOs,residing outside India can open FCNR (B)
accounts
FCNR (B) accounts are maintained as fixed depositsin certain designated currencies The designated currencies are: US$, GBP, Japanese Yen, Euro, Cad$, Aus $ Maintained in Banks in India in the above
mentioned foreign currencies and interest is alsoearned in such foreign currencies
Repatriation of funds (principal, interest) is allowed
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Loan ProductsFund Based
BILLSFINANCE
TERMFINANCE
RETAILFINANCE
OVERDRAFT
CASH CREDIT
LOANS&
ADVANCES
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Loan ProductsNon Fund Based
Letters ofCredit
Bank Guarantee
Co-Acceptance
Of
Bills
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Know Your Customer (KYC) -1
KYC: Know Your Customer
Know your customer (KYC) norms are
applicable to all types of customer a/cs.
It deals with not only to identify the
customer but also to understand the
activities of the customer, and to ensure
that the operations in the customer
account/s is/are for genuine purpose
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Know Your Customer (KYC) -2
Application of KYC norms have becomeimportant due to various reasons.
In view of many issues on account of
drugs smuggling, money laundering,terrorist activities, arms dealing,etc.,
banks need to be careful in dealing with
their clients.
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Know Your Customer (KYC) -3
Customer
Acceptance
Policy
Monitoring ofTransactions
Risk Management
CustomerIdentification
Procedure
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Bank Customers - 1
Power of
Attorney
Holders
Executors/Trustees
Illiterate
Perons
Minors
Joint accounthoders
Individuals
Bank Customers
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Bank Customers - 2
Sole
Proprietor
Clubs/
Socities
Coproates
Hindu
Undivided
Family
Partnership
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BANKER-CUSTOMER
RELATIONSHIP
DEBTOR-CREDITOR
CREDITOR-DEBTOR
AGENT-PRINCIPAL LESSOR-LESSEE
BAILEE-BAILOR
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CHEQUES
OPEN
CROSSED
ORDER
BEARER
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NEGOTIABLE INSTRUMENTSPaying Banker:
Payment in
Due
Course
ApparentTenor
In good faith WithoutNegligence
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NEGOTIABLEINSTRUMENTS
BANKERS DUTIES
&
RESPONSIBILITIES
C0LLECTING
BANKER
COLLECTION OF
CHEQUES
HOLDER INDUE
COURSE
CONSIDERATIONTITLE
BEFOREMATURITY
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Six Cs
Character
Capital
Capacity
Collateral
Condition
Compliance
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Working Capital Cycle
Cash
Raw material
Semi finished goodsFinished goods
sales
Bills receivables
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CHARGES
HYPOTHECATION
PLEDGE MORTGAGE
ASSIGNMENT
LIEN
SET OFF
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Risk Management
Credit
Risk
Liquidity
Risk
Operations
Risk
Price
Risk
Interest Rate
Risk
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SRFAESI Act,2002
- Securitisation and Reconstruction ofFinancial Assets and Enforcement of
Security Interest Act (SRFAESI) was
enacted in 2002
_ Securitisation Company/Reconstruction
Company (SCRC) can finance the
acquistion from own resources or rise
sources from Qualified Institutional
Buyers (QIBs)
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SRFAESI Act,2002
Enforcement of
Security interest
Transfer of NPA
Legal framework
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Priority Sector 1
Priority Sector
Primay Secondary Teritary
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Priority Sector2
Primary Sector
Agriculture Allied Activities
Direct Indirect
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Priority Sector 3
Secondary Sector
SSI/SME SSSBE
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Priority Sector 4
Tertiary Sector
Small road/water
Transport operator
Small business/businee
enterprises
Professional/self
employed
Educational loans
Housing finance
Others
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Small & Medium Enterprises (SMEs)
SMEs are classified based on Small &Medium Enterprises Development Act,2006
SMEs are divided into micro,small & mediumsized entities.
SMEs are classified based on two categories
viz., manufacturing units and servicecompanies.
In case of manufacturing units investmentsin plant and machinery and for service
companies investments in equipment areconsidered for classification as SMEs
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Credit Management in Banks
Capital adequacy
norms
Prudential
norms
Credit appraisal
system
Exposure
norms
Risks-ALM
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Documentation 1
- Loan documents are classified as
primary and secondary- Documents are obtained based on the
type of credit facility/constitution of theborrower/nature of securities offered by theborrowers
- Documents should have a clear titleand can be valid to be enforced in acourt of law
- Wherever required documents need to be
stamped appropriately- Documents should be properly filled up and duly
executed by authorised persons.
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Documentation 2
Documentary evidence as per Sec 61of Evidence Act :
a) Primary: original documents needs to
be produced for inspection of courtb) Secondary:
- certified copies
- copies made from or compared withoriginal
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E banking
E Banking
CreditCards
InternetBanking
Core
Banking
Solutions
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ALL THE BEST & THANK YOU
T.M.C.VARADARAJAN TEL : 022-25638965 (R)
022-66364206 (O)
e.mail: [email protected] [email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]