jaiib prin banking mod abapr08
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 threemain segments viz.,
1) Financial institutions -banks,
mutual funds, insurancecompanies
2) Financial markets -moneymarket,
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 corporation
b) 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 (BRAct)-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(RBIAct)-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 in1935, after the enactment of the ReserveBank 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,etcBR Act,1949 gave RBI powers to
regulate,superivse and develop the bankingsystem in India
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Reserve Bank of India 2
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 ofUPN issued by scheduled commercial banksand are freely transferable by endorsementand delivery.
Introduced in 1989
Minimum period 7 days and maximum periodone year. FIs are allowed to issue CDs for aperiod between 1 year and up to 3 years
Minimum amount is Rs 1,00,000.00
Subject to payment of stamp duty under theIndian Stamp Act, 1899
Issued to individuals, corporations, trusts,funds and associations
Issued at a discount rate freely determined bythe market/investors
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Commercial Paper
Short-term borrowings by corporates, financialinstitutions, primary dealers from the moneymarket
Can be issued in the physical form (Usance
Promissory Note) or de mat format Introduced in 1990
When issued in physical form are negotiable byendorsement and delivery and hence, highly
flexible Maturity is 7 days to 1 year
Unsecured and backed by credit rating of theissuing company
Issued at discount to the face value
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Repos
Repo (repurchase agreement)instruments enable collateralised short-term borrowing through the selling ofdebt instruments
A security is sold with an agreement torepurchase it at a pre-determined dateand rate
Reverse repo is a mirror image of repoand reflects the acquisition of a security
with a simultaneous commitment toresell
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INDIAN CAPITAL MARKET
Indian Capital Market plays an important rolein the economic development of the country
It provides opportunities for investors to investin the market and also to earn attractive rate
of return.
It also creates source of funds for the varioussectors
National Stock Exchange (NSE) and BombayStock Exchange (BSE) are the major stockexchanges in India
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Securities & Exchange Board of India(SEBI)
SEBI was constituted on April 12/1988,and obtained the statutory powers inMarch,1992
SEBIs functions:
To protect the interests of investorsTo recognize the business in stock
exchanges and other security markets
To supervise and regulate work ofintermediaries, such as stock brokersmerchant bankers/custodians
depositories/bankers to the issues
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Association of Mutual Funds in India(AMFI)
AMFI is an association as a nonprofit organization.
AMFI represents mutual funds in
India and working for healthygrowth of the Mutual Funds.
AMFI conduct examinations for MF
executives as part of their trainingactivities
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Insurance Regulatory & DevelopmentAuthority (IRDA)
The regulator for insurancebusiness in India is IRDA.
IRDA was established in 2000
IRDAs functions:To regulate, promote and ensure
orderly growth of the insurance
business and reinsurance businessin India
To protect the interests of policy
holders
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Insurance Sector
Insurance Sectorin India can bedivided into twomain sections
General Insurance
Life Insurance
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Financial Intermediaries (1)
Mutual Funds- As financial intermediarypromote savings and mobilise funds which areinvested in the stock market and bond market
MFs are associations or trusts of publicmembers and assist them in makinginvestments in the financial instruments of thebusiness/corporate sector for the mutualbenefit of its members.
MFs aims to reduce the risks in investmentsMutual funds help their investors to enhancetheir value by investing the funds in capitalmarket.
Mutual funds offer various schemes: growthfund, income fund, balanced fund,sector wisefunds, etc.,
Regulated by SEBI
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Financial Intermediaries (2)
Merchant banking- Another importantfinancial intermediary which managesand underwrites 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 theirbusiness.
RBI supervises those merchant bankswhich are subsidiaries or affiliates of
commercial banks
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Indian Banking - Significant events1
Three presidency banks were established in Calcutta
(1806) in Bombay (1840) and in Madras (1843) In the early part of 20th century, on account of the
Swadeshi movement a number of join stock banks wereestablished by Indians like Bank of India, Bank of Barodaand Central Bank of India.
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 BankingEnquiry Committee to trace the reasons for the failureof banks.
The Reserve Bank of India Act was passed in 1934 and
the RBI came into existence in 1935 and RBI wasnationalised in 1949 The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India
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Indian Banking -Significant events 2
In 1955 State Bank of India became thesuccessor to the Imperial Bank of India ,underthe State Bank of India Act,1955.
In 1959 State Bank of India (Subsidiary Banks)Act was passed to enable SBI to take overState Associated banks as SBIs subsidiaries
In 1969 the Government of India nationalised14 major commercial banks having deposits ofRs.50 crore or more
In 1975 Regional Rural Banks were establishedunder RRB Act 1976, which was preceded byRRB Ordinance in 1975
In 1980 six more commercial banks werenationalised, with a deposit of Rs.200 crore ormore
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Progress of banking in India
In the liberalised, privatised andglobalised environment, banksopeating
in India have diversified theirbanking activities by offering ParaBanking facilities like
Merchant banking/Mutual funds ATMs/Credit Cards/Internet banking
Venture capital funds
Factoring
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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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Classification of Banks-3
Public Sector Banks =State Bank ofIndia+SBIs associate banks+
Nationalised banks
Private Sector Banks=IndianPrivate Sector Banks (Old/Newgeneration banks)+Foreign banks
in India Other Banks=Regional Rural
Banks(RRB)
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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 BankerLender of the last resort
Credit Control & Monetary Policy
Exchange Control & Forex ManagementFunds Transfer
C IT C T
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C IT C T
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 variousopportunities
- Collecting cheques/drafts andother Negotiable Instruments
-
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Functions ofBanks-3
Commercial Banks Para 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 Mutual
funds,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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Deposit Accounts FCNR(B)
FCNR (B) accounts NRIs,PIOs,residing outside India can open
FCNR (B) accounts
FCNR (B) accounts are maintained as fixeddeposits in 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 isalso earned in such foreign currencies
Repatriation of funds (principal, interest) isallowed
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Loan Products Fund Based
BILLSFINANCE
TERMFINANCE
RETAILFINANCE
OVERDRAFT
CASH CREDIT
LOANS&
ADVANCES
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Loan Products Non Fund Based
Letters of
Credit
Bank Guarantee
Co-Acceptance
Of
Bills
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Know Your Customer (KYC) -1Know Your Customer (KYC) -1
KYC: Know Your CustomerKYC: Know Your Customer
Know your customer (KYC) norms areKnow your customer (KYC) norms are
applicable to all types of customer a/cs.applicable to all types of customer a/cs.
It deals with not only to identify theIt deals with not only to identify the
customer but also to understand thecustomer but also to understand the
activities of the customer, and to ensureactivities of the customer, and to ensure
that the operations in the customerthat the operations in the customer
account/s is/are for genuine purposeaccount/s is/are for genuine purpose
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Know Your Customer (KYC) -2
Application of KYC norms havebecome
important due to various reasons.
In view of many issues on accountof drugs smuggling, moneylaundering, terrorist activities,
arms dealing,etc.,banks need to be careful in dealingwith 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 account
hoders
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
CapacityCollateral
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
PLEDGEMORTGAGE
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 Sector 2
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 DevelopmentAct,2006
SMEs are divided into micro,small &medium sized entities.
SMEs are classified based on twocategoriesviz., manufacturing units and servicecompanies.
In case of manufacturing unitsinvestmentsin plant and machinery and for servicecompanies investments in equipment
are
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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 the
borrowers- 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
dulyexecuted by authorised persons.
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Documentation 2
Documentary evidence as perSec 61
of Evidence Act :
c) Primary: original documentsneeds to
be produced for inspection ofcourt
b) Secondary:- certified copies
- copies made from or compared
with
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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.VARADARAJANTEL : 022-25638965 (R)
022-66364206 (O)
e.mail:[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]