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Kulkarni
1.1FINANCIAL SYSTEM
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Session 1
FINANCIAL SYSTEM
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The Financial System represents a channel through which savings are mobilized through the surplus units and routed to the deficit units.
FINANCIAL SYSTEM
Seekers of Funds (mainly
business firms and government)
Flow of Funds (Savings)
Flow of Financial Services Incomes, and Financial Claims
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Savings Function Liquidity Function Payment Function Risk Function Information Function
Only the act of savings will not guarantee economic progress. This is due to the fact that savings and investments are usually be carried out by different groups, savings comes from the household sector and the investments are being made by the corporate sector. Hence, there should be a mechanism to ensure that savings flow from those who save to those who wish to invest. The process will enable the utilization of excess idle funds, there by enhancing their value. Enabling such a transfer of funds from the savers to the borrowers is the Financial System
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The saving Function: Savings find their way into the hands of those in the production through the financial system. Financial claims are issued in the money and capital markets which promise the future income flow. The funds with producers result in production of better goods and services.
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LIQUIDITY FUNCTION
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Money in the from of deposits may give less return One therefore always prefers to store funds in financial instruments like stocks, bonds, debentures. In these instruments risk high and less degree of liquidity. The financial market provide the investor with the opportunity to liquidate the investment.
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PAYMENT FUNCTION
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The financial system offer a very convenient mode of payment for goods and services. Cheque and credit card system are easiest way of payment. Various payment system are in operation in the modern financial system. Risk Function: The financial market provide protection against life, health and income risk. Life insurance and non life insurance are provided by the financial market. The income risk is covered the hedge instruments.
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Financial System
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Financial Assets
Financial Markets
Financial Intermediaries
Forex Market
Capital Market
Money Market
Credit Market
Primary Market
Secondary Market
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Players
Banks, Government, FIs, Corporate, FIIs, MFs, Individuals Corporate, Banks, FIs, Individuals, MFs, FIIs Banks, Corporate, Forex Dealers
Regulator
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Money Market
RBI
SEBI RBI
Credit Market
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Financial System tries to fulfill its role through the Financial Markets. Financial Markets aid in increasing production and income for the various units. It channelize the savings of households and surplus budget to those institutions that need fund. The quantum of funds are made available to the borrowers.
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Financial Markets
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Money Markets
Capital Markets
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Primary Markets
Call Money Market Treasury Bills Commercial Paper Certificate of deposit MMMFs Public Issue Rights Issue Bonus Issue Private Placement Bought-out Deals
Secondary Markets
Trading Systems Depositories
FINANCIAL MARKET
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Financial market can be defined as the market in which financial assets are create or transferred. Financial markets are some time classified as primary and secondary market. The distinction between two market is bases on the differences in the period of maturity of the financial assets issued in these markets
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TYPES OF MARKETS
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2)
Depending on the differing requirements, various sub-markets have developed. The main segments of the organized Financial Markets are as follows: Money Market The Money Market is a a whole sale debt market for low-risk, high liquid, short-term instruments. Funds are available in this market for periods ranging from a single day up to a year. The market is dominated mostly by Government, Banks and Financial Institutions. Capital Market The Capital Market is aimed at financing the long-term investments. The transaction taking place in this market will be for periods over a year
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MONEY MARKET
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The market that deals with short-term funds requirements is called the money market. The funds are available for the period of single day to one year. The Government, Banks and the financial institutions are main players in the money market. The instruments in the money market are of shortterm nature and highly liquid.
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With short- term liquidity being the main purpose of money market, various instruments have been developed to suit these short-term requirements. For instance the amount required of funds by banks to meet their statutory reserves will vary from one day to a fortnight. Similarly corporate may require funds for their working capital purpose for any period up to a year. Call money market, treasury bills market and markets for commercial papers and certificate of deposits are some of the examples.
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II CERTIFICATE OF DEPOSIT
Based on the recommendation of Vaghual Committee Report ,RBI formulated a scheme in June 1989 for issue of CD. Certificate of Deposits are issued by the banks in the from of negotiable promissory note and short term nature. They are negotiable and are marketable form bearing specific value and maturity. They are transferable from one party to other. CDs are available for subscription for individuals, corporate, companies, trusts NRI ,MFs CD should be issued in denomination of Rs 1 lakh. The market lot (physical or demat) will one lakh or multiple.
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CD may issued at discounted on the face value with the issuing bank FIs having the freedom to determine the discount rate. The are also issued on floating rate. The maturity period of CD should not be less than 7 days and more than one year. FIs can not issue CD for the period less than one year and more than three year. CDs are issued only in dematerialize form.
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COMMERCIAL PAPER
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Commercial paper (CP) is also money market instrument. RBI introduced CP in 1990 enabling highly rated corporate borrowers to diversify their sources of borrowings. CD is an unsecured usance money market instrument issued in the from of promissory note at a discount and is transferable. CP are issued in denomination of Rs 5Lakh and multiple thereof. A single investor should not invest less than Rs 5 lakh of value.
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All eligible participants have to obtain the credit rating from the credit rating organization. The minimum rating should be P-2 of CRSIL or such equivalent rating by other agencies. CP can be issued in dematerialized or physical from. All India financial Institutions and primary dealers are also allowed to issue CP. CPs are subscribed by individuals, banks, corporate bodies, NRIs, and FIIs. CP has minimum maturity period of 15 days and maximum of one year.
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CAPITAL MARKET
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The capital market provides the resources needed by medium and large scale industries for investment purposes. The capital market functions as an institutional mechanism to channel long term funds from those who save, to those who need them for productive purposes.
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The capital markets consists of the primary markets and the secondary markets and there is a close link between them. The primary market creates long term instruments through which corporate entities borrow from the capital market. But the secondary market is the one which provides liquidity and marketability to these instruments.
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PRIMARY MARKET
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To meet the financial requirements of their projects companies raises capital through issue of securities (shares and debentures)in the primary market.
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The primary market created long term instruments through which corporate entities borrow from the market.
The secondary market is the one which provides liquidity and marketability to these instruments.
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TYPES OF ISSUES
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1. 2. 3. 4. 5.
A company can raises the capital through issue of shares and debentures by means of : Public Issue Right Issue Bonus Issue Private placement Bought out deals
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Public issue: when the securities are issued to members of the public it takes the form of public issue. Most popular method of raising long term funds. Securities are allotted to the general public. Rights issue: Where the equity shares of a body corporate is made to the existing shareholders as a pre-emptive right, it takes the form of rights issue. Private placement: Where the shares of a body corporate are sold to a group of small number of investors it takes the form of a private placement. These investors are selected clients such as FIs, corporates, banks and high net worth individuals.
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SECONDARY MARKET
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The secondary market is that segment of the capital market where the securities issued in the primary market are traded. It provide the liquidity to various financial instruments. The secondary market operate through the stock exchanges. Stock exchanges are regulated under Securities contract Regulation Act1956 and SEBI Act 1990. The stock exchanges are auction market and it is characterized by Bull and Bear. Bull is the buyer in the market. He may take optimistic view while bear is the seller (pessimist attitude)
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The following are the main products/instrument s dealt in the secondary market. Equity Preference share Security Receipts Debenture Commercial paper Bond
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Corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both.
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Track Record: should have track record for paying dividend for last three years. It has net tangible assets of at least Rs 3 crore in each of the proceeding 3 years. It has a net worth of at least Rs 1 crore in each of the proceeding 3 financial years. The securities are compulsorily listed on a recognized stock exchange.(more than one stock exchange if the paid up capital is more than 5 crore) Promoters minimum contribution: The promoter group is required to make certain minimum contribution. Lock in Period: Promoters contribution is IPO is subject to lock in period is 3 years from date of allotment
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BOOK BUILDING
Book building involves inviting subscriptions to a public offer of securities through a process of tendering. Prior to book building Merchant banker fixes the floor price in consultation with the issuer. The floor price is the minimum price at which bid can be made. Eligible investors can fill up a bid-cum- application form and submit to lead manager running the book. The lead manager assesses the response to the issue, ascertains the highest price at which demand is sufficient to match the size of the issue. The company which are eligible to make the public issue can freely price its share. However, the issuing company has to disclose the basis for price in term of adjusted EPS, return on net worth, net asset value etc.
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Approval of the Board Appointment of lead manager Appointment of other intermediaries Preparation of prospectus Filing of prospectus with the registrar of company Printing and dispatch prospectus and application form. Filing of initial listing application Promotion of the issue Statutory announcement Collection of applications Allotment of shares Listing of shares
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Appoint of the lead Manager- merchant banker- must be selected carefully. Under -writer: An under- writer agree to subscribe the shares in the event to public do not subscribe them. Banker: The banker to issue collect the money on behalf of the company.
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Brokers to issue facilities its subscription. Registrar : collection and scrutiny of application form. issue and dispatch of allotment letters refund
All companies seeking to make the public issue have to file their offer document with SEBI. Company may go for public issue if there is no communication from SEBI within 21 days. Once the prospectus is approved by stock exchange and consent from intermediaries, company should file prospectus with Register of companies.
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SECONDARY MARKET
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The secondary market is that segment of the capital market where the securities issued in the primary market are traded. It provide the liquidity to various financial instruments. The secondary market operate through the stock exchanges. Stock exchanges are regulated under Securities contract Regulation Act1956 and SEBI Act 1990. The stock exchanges are auction market and it is characterized by Bull and Bear. Bull is the buyer in the market. He may take optimistic view while bear is the seller (pessimist attitude)
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DEPOSITORY
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Certificate form securities led to problem in physical storage and transfer of securities. The transaction cost was also very high. A depository is an entity which hold the securities in the electronic form. Dematerialization is the process by which physical certificates are destroyed and equal number of securities are credited in the account of creditors. The risk of bad delivery is eliminated, transaction cost reduced. SEBI mandated compulsory trading and settlement in dematerialized form. Two depositories have come into existence NSDL and CDSL.
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TRADING SYSTEM
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Trading system in the stock exchanges was carried out by public outcry- in the trading ring. OTCEI is the first exchange to introduce screen based trading. Screen based trading received big boost after setting up NSE All big stock exchanges have introduced the screen based trading. The fully automated trading system enabled market participants to login order, execute deal and receive online market information.
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SETTLEMENT SYSTEM
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Trading in equities is internationally done on rolling settlement basis. In India, trading settlement s done on T+2 SEBI is encouraging the stock exchanges to shorten their settlement period cycle further to T+1
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DEBT MARKET
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Government securities are the most important and unique financial instruments in the financial markets of any economy. GOI sec. include debt obligations of the central government, state government and other financial institutions owned by central and state governments. As the repayment of principle as well as interest is secured by government, these instruments are usually referred to as Gilt-edged Securities. Literally gilt means gold, therefore, a giltedged security implies Security of the Best Quality.
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The govt securities are issued by Central, State , local and semi-government authorities SEB, SFCs NABARD etc. The government securities are issued with the maturity ranging from 2 to 31 years, Long term above 10 years, Medium term 5-10 years and short term below 5 years. Individuals ,firms, companies, corporate, State governments, Banks and all India Financial Institutions, Trust, MFs PF are allowed to invest. The minimum amount of investment in Government securities for single investor is of Rs 10,000 and multiple therof.
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The RBI issue government stock to investor by crediting in their subsidiary General Ledger account. The fixed interest rate in there on time dated securities It is called as a coupon rate. These securities are essentially fixed income securities.
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During liberalization many corporate from the developing countries are issuing dollar foreign currency denominated equity shares. The shares issued by the corporate are held by the depository large international banks. These shares deposited with local custodian appointed by the depository which issue the receipt against these shares. This instrument is called as depository receipts. The depository receipts are denominated in convertible currency usually US Dollar
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Depository receipt is negotiable certificate issued by depository banks. It may be listed or traded on major exchanges for liquidity purpose. A GDR is a negotiable instrument which present publically traded local currency equity share. Each depository receipts a specific number of shares in domestic market. They are entitle for dividend. ADR is dollar dominated negotiable certificate, it present a non US companys publicly traded equity. It was devised to help American invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Market.
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ADR/GDR - FEATURES
These are special instruments which are created from ordinary shares to generate funds abroad The shares of a company are deposited with a bank which will issue GDRs and ADRs of equivalent value in a foreign currency (normally dollars) The holder of a GDR does not have voting rights The proceeds are collected in foreign currency thus enabling the issuer to utilize the same for meeting the foreign exchange component of project cost, repayment of foreign currency loans, meeting overseas commitments and for similar other purposes. Dividends are paid in Indian rupees due to which the foreign exchange risk or currency risk is placed totally on 47 the investor
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ADR/GDR - FEATURES
The GDRs are usually listed at the Luxembourg Stock Exchange as also traded at two other places besides the place of listing e.g. on the OTC market in London and on the private placement market in USA. An investor who wants to cancel his GDR may do so by advising the depositary to request the custodian to release his underlying shares and relinquishing his GDRs in lieu of shares held by the Custodian. The GDR can be canceled only after a cooling-period of 45 days. The depositary will instruct the custodian about cancellation of the GDR and to release the corresponding shares, collect the sales proceeds and remit the same abroad.
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ADR/GDR FEATURES
Marketing of the GDR issue is done by the investment banks that manage the road shows, which are presentations made to potential investors. During the road shows, an indication of the investor response is obtained. The issuer fixes the range of the issue price and finally decides on the issue price after assessing the investor response at the road shows. Cost of floating an ADR or GDR issue is quite high and is only justifiable if the amount of finance to be raised is quite large
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GDR and ADR issue should obtain the approval from Government of India, Ministry of Finance. Bonds: the Indian companies can also raise foreign currency funds by issuing bonds in domestic market. Typically a Euro-bonds are issued outside the country of the currency in which it is dominated. They are listed one or more stock exchanges. The bonds may be fixed rate bonds or Floating rate notes.
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There are 22 stock exchanges in India. In term of legal structure, the stock exchanges in India could be segregated into two broad groups. 19 stock exchanges which were set up as companies and three stock exchanges which were association of persons(AOP)-BSE, ASE and MPSE. Apart from NSE, all stock exchanges whether established corporate bodies or AOP were non profit making organization. To improve the efficiency of the exchange it is necessary to corporatize them.
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Demutualization
of stock exchanges:
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Demutualization refers to the transition process of the exchange from the mutually owned association to a shareholders-owned company. In other words, transforming the legal structure of an exchange from mutual form to a business form. After demutualization the ownership, the management and the trading right at the exchange are segregated. At the movement, the broker members of the exchange are both the owners and the traders on the exchange and they further manage the exchange as well. Stock Brokers : A broker is member of the recognized stock exchange, who is permitted to do trading on the screen based trading- registered with SEBI A sub-broker is also registered with SEBI and affiliated with member of stock exchange
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SEBI
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The Capital Issue controls on issue of the Capital by the companies have been substituted by the transparent and simplified guidelines issued by the SEBI under the SEBI Act,1992. Functions of SEBI are following: Promote fair dealings by the issuers of securities and ensure a market place where funds can be raised at a relatively low cost. Provide a degree of protection to the investors and safeguard their rights and interests. Regulate and develop a code of conduct and fair practices by intermediaries in the capital market.
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Qualified institutional Buyers are those institutional investors who are generally perceived to posses an expertise and financial muscle to evaluate and invest in capital market. The QIB are : Public financial intuitions Scheduled commercial banks Mutual funds FII registered with SEBI VC funds SIDCs Provident funds and Pension funds
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What is a Mutual Funds :Mutual fund is a mechanism for pooling resources from public by issuing units to them and investing the funds, so collected in the securities. Mutual fund issues units to investors in accordance with the quantum money invested by them. Investors of mutual funds are known as unit holders. The profit and loss of funds are shared by the investors in proportion to their investment. A mutual fund is required to be registered with SEBI SEBI formulates the policies and regulates the mutual funds to protect the interest of investors
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A mutual fund is set up in the form of a trust. Which has sponsors, trustees, Asset Management companies and custodians. The trust is established by a sponsor or more than one sponsors. Sponsors is like promoter of the company. Trustee of the mutual fund hold its property for the benefit of the units holders. An AMC approved by SEBI manages the fund by making investment in the various type of securities.
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A custodian who is also registered with SEBI holds the securities of various schemes of funds in its custody. SEBI regulations require that at least two-third of the directors of the trustee company or board must be independent Types of Schemes: A mutual fund scheme can be classified into open-ended fund or a close ended fund depending on the maturity period.
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Open-ended scheme : These scheme do not have maturity. It is available for subscription and purchase on a continuous basis. Investors can conveniently buy and sell unit at NAV related price. Close ended scheme : a close ended scheme has a stipulated maturity -3 to 10 years. The fund is open for subscription only during specified period. Buy and sell the unit of the scheme on the stock exchange
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Session 2
IRDA
In the year 2000 , IRDA was constituted as an autonomous body under IRDA Act 1999. The IRDA shall have the duty to regulate, promote, and ensure an orderly growth of the insurance business and reinsurance business. The power and function of IRDA shall include (1) issuing to the applicant a certificate of registration, renew ,modify , suspend, or cancel. Protect the interest of the policy holders.
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Regulator for insurance business both general and life assurance. Regulate all aspects of insurance business, including licensing of insurance companies, framing regulations about the conduct of business and supervising all insurance activities in the country. Specifying the code of conduct for surveyors and loss assessors. Promoting efficiency in the conduct of insurance business. Specifying the form and manner in which book of account shall be maintained Regulating investment of funds by insurance company. Regulating the percentage of insurance and general business to be undertaken by the company in rural area. Regulating maintenance of margin of safety.
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The Indian Insurance Industry is as old as any part of the world. The first insurance company was started in 1818 I kolkata. The reasons for the nationalization are conserved mostly with unethical practices adopted by some players. There was tremendous growth of this sector after nationalization. However, there was feeling that the industry is not fully responsive to customers needs. The insurance industry till 1999-2000 comprises mainly of two players. LIfE segment LIC and general insurance segment GIC with its four subsidiaries orient insurance, New india, National insurance, United India insurance.
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Opening of the Sector : The insurance sector was opened up in the year 1999 , facilitating entry of private players in to industry. The entry level capital requirement were kept at Rs 100 crore. The regulatory framework is applicable to both private as well as public sector units. The new environment has facilitated competitive conditions and industry has exhibited a healthy growth. Now there are 8 public sector companies and 21 private sector. Insurance business is divided into four classes : Life insurance , Marine insurance, fire insurance and Miscellaneos insurance
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Non-Scheduled Banks
Commercial Banks Indian Banks Public Sector
Scheduled Banks
Private Sector
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Role and function of RBI: RBI has two distinct roles, Monetary control including controlling inflection and bank supervision. This ensured through off-site and on site surveillance. The monetary control is exercised through CRR and SLR mechanism. Central Bank do act as lender of last resort to banking system and are responsible for ensuring an efficient payment system. RBI main Functions are: Note Issuance Tools of monetary control
Governments Bank Bankers Bank Bank Supervision Development financial system CRR Bank Rate Open market operation Selective credit control
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Exchange control
Monetary control
Reserve Bank of India- Functions of RBIThe different functions of RBI of India can be classified into 3 broad headings:
Supervisory and Regulatory Promotional and Developmental Refinance Operations
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Control of Credit through Monetary Policy Exchange Control Statutory Regulation Bank of Central Clearance Settlement and Transfer
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Refinance Operations
COMMERCIAL BANK
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1.
2.
3.
4.
Banking in India today: Banking operations have witnessed tremendous changes over a period of time due to the advancement in the technology or globalization or both. They have become far more advanced when compared to past. One of the key challenges that banks face today is their ability to offer fee based services that can reach out directly to where their customers are and be profitable at the same time. Traditional banks have long been exposed to strong external pressures. These pressures include technological revolution, securitization, rising competitions, deregulation, etc. There are tow models emerging in the banking sector today. One of them is universal banking in which banks are attempting to provide products and services developed by them to customers. The second one is CRM.
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Definition of Commercial Banks: The Banking Regulation Act 1949, defines Banking as accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise. Definition of Scheduled Bank: Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.
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REGULATORY PROVISIONS
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1. 2.
Banking in India is manly govern by the Banking Regulation Act 1949 and RBI Act 1934. RBI and GOI exercise control over bank from opening of banks to their winding up. Banking is defined in section 5B of the banking regulation act as the acceptance of deposits of money from the public for the purpose of lending or investment. Such deposits may be repayable on demand or otherwise withdraw able by cheque/draft/order/ or otherwise. Thus Bank must perform two main functions : One acceptance of public deposits. Lending or investment of such deposits.
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REGULATORY PROVISIONS
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License for Banking : In Indian it is necessary to have the license from RBI under section 22 of the B.R.Act for commencing or carrying on the business of banking. Permitted Business : Although traditionally the main business of the bank is acceptance of deposits and lending, the bank have their wings far and wide in to many allied and even unrelated activities. The forms of business permissible under section 6(1) of the BR Act, apart from banking business, are summarized below:
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REGULATORY PROVISIONS
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(a) Borrowing , raising or taking up of money (b) Acting as the agent of the government. (c )contracting for public and private loans (d) insure, guarantee, underwrite, participate in managing and carrying any issue of state/ MC other loans or of shares stock, debentures stock of companies and lend money for the purpose of any such issue. (e) Carry on and transact every kind of guarantee. (f) under take the administration of the estiates (g) Do any other business specified by the central government.
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REGULATORY PROVISIONS
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Prohibited Business : Section 8 of B R Act prohibit banking company from engaging directly or indirectly in trading activates. and under taking trading risk
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i. ii.
iii. iv.
The Indian Financial System is composed of different institutions as under: Cooperative banks and commercial banks are providers of short-term finance. Land development banks extend lending through mortgage bank securities (of land) for development. Development financial institutions focus on meeting needs of development finance. With the liberalization of the economy and the financial system the role discrimination between commercial banks and development financial institutions is getting blurred
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Indian banking System The present banking system of India can be classified as follows: Public Sector Banks State Bank of India and its 7 associate banks called the State Bank Group 19 Nationalized Banks Regional Rural Banks sponsored by Public Sector Banks. Private Sector Banks Old Generation Private Banks New Generation Private Banks Foreign Banks in India Scheduled Co-operative Banks Non-Scheduled Banks.
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Co-operative Sector Banks: The co-operative banking sector was developed in the country to supplement the village money-lender. It comprises: Central Co-operative Banks State Co-operative Banks Primary Agricultural Credit Societies Land Development Banks Urban Co-operative Banks State Land Development Banks. Development Banks Development Banks are those financial institutions, which provide long-term capital for industries and agriculture, namely: Industrial Finance Corporation of India (IFCI) Industrial Development Bank of India (IDBI) Industrial Credit & Investment Corporation of India (ICICI) Industrial Investment Bank of India (IIBI) Small Industries Development Bank of India (SIDBI) National Bank for Agriculture & Rural Development (NABARD) Export-Import Bank of India National Housing Bank.
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1. 2. 3. 4.
Banking operations
Major Banking Activities undertaken by modernized banks: Section 6 of the Banking Regulation Act lists the following activities as those in which a Banking company may engage in: Main Functions: Borrowing / Raising / Taking of Deposits Lending or Advancing of Money Subsidiary Services: Issue of LC/ Guarantee Acting as agents to Government / Local Authority / Any other persons/ corporate To act as executors / trustees Agency Services Collection Remittances Foreign Exchange Business General utility Services: Safe Deposit Lockers Demat Service Cash Management Service
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5.
Electronic Banking Services Anywhere / Online Banking ATM Phone / Mobile Banking Credit Cards / Debit Cards E-Banking Consumer Credit Capital Market related activities Retail credit - vehicle loan, consumer loan, education loan, etc
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Banking Sector Reforms: Till 1991, no particular importance was attached to Profits, Returns on Invested Funds or even to quality of assets by Banks in India. The thrust of the entire operation was on meeting certain predetermined and ordained targets. The result was Banks largely succeeded in mobilizing savings but failed in Resource Allocation due to Govt. Directives. In the process, the health of the Banking System was neglected and asset quality had deteriorated.
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Narasimham Committee Report: In August 1991, Govt. of India appointed a committee to review the Financial System under the chairmanship of M. Narasimham, Former Governor of RBI. The Committee made various recommendations for Financial Sector reforms. The important recommendations relate to the following areas: Deregulation of Interests Rates Stipulation of minimum Capital Adequacy Ratio at 8%by March 1996 Uniform Accounting practices in regard to income recognition, asset classification & provisioning for bad / doubtful debts Imparting transparency to Banks Balance Sheets & making full disclosures
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FUND BASED
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Cash credit & Overdrafts Discounting trade bills Money at call Term loans Consumer credit Miscellaneous advances
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The
maximum borrowing limit is pre determined. The cash credit and overdraft are running accounts. The borrower can withdraw the fund as and when needed. The borrower enjoy the facility of repaying the amount partially or fully. The interest is charged on the actual amount withdrawn. The security for cash credit is generally inventory.
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A bill arising out of transaction is presented by the sellers after acceptance by the purchasers to banks for discount and payment is made. Money at call : Bank also grant loan for very short period not exceeding 7 days to dealers or brokers. Such advances are repayable in short notice.
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PRIORITY
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32% of NBC
No target
10% of advances
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Categories of Priority sector: Agriculture Direct and indirect finance- agriculture allied activates , SHG, Small Enterprises : direct finance to small enterprises include loans given to micro and small manufacturing enterprises and micro and small service enterprises providing services. Retail Trade : Include retail traders dealing in essential commodities and consumer co-operatives. Micro Credit Not exceeding Rs 50000 either directly or through SHG Education loan Rs 10 lakh in India and Rs 20 lakh in abroad. Housing loan: loan up to Rs 20 lakh to individual, Repairing Rs 2lakh (urban ) and Rs 1 lakh in rural
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Weaker section : Small and marginal framers Artisans Swarnjayanti Yojana SC and ST SLG SME Financing : SME sector play very important role in economic development. It contribute 40% of the industrial production and 35 % of the export and generate employment opportunities. Low investment requirement, operating flexibility and labour intensive are main characteristic of this sector
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Micro,
MSMED Act was passed in 2006 for the sound growth of SME sector. The enterprises in this Act has been classified as micro, small and medium. Based on their activity these enterprises have further classified as manufacturing enterprises and service. The MSMED Act has provision to safeguard the interest of SME by putting penalty clause on delayed payment. If the buyer failed to pay within 45 days buyer shall be liable to interest to suppliers. SIDBI and NSIC have set up credit rating schemes for SME sector to facilitate the flow of credit
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1. 2. 3.
Different Types of Banking Services And Products: Section 6 of the Banking Regulation Act lists the following activities as those in which a Banking company may engage in: Main Functions: Borrowing / Raising / Taking of Deposits Lending or Advancing of Money Subsidiary Services: Issue of LC/ Guarantee Acting as agents to Government / Local Authority / Any other persons / corporates To act as executors / trustees Agency Services Collection Remittances Foreign Exchange Business
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4. 5.
Different Types of Banking Services And Products: General utility Services: Safe Deposit Lockers Demat Service Cash Management Service Electronic Banking Services Anywhere / Online Banking ATM Phone / Mobile Banking Credit Cards / Debit Cards E-Banking Consumer Credit Capital Market related activities Retail credit - vehicle loan, consumer loan, education loan, etc
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Retail Banking includes a comprehensive rang of financial products. They are: deposits products, housing loans, credit cards, auto finance, personal loans, consumer durable loans, loans against the equity shares, loans for subscribing IPO, debit card, Mutual funds and investment advisory services. These products provide the opportunities to banks to diversify assets portfolio. Retail Banking: Retail banking is typical mass-market banking where individual customers use local branches of larger commercial banks. Services offered include: savings and checking accounts, mortgages, personal loans, debit cards, credit cards, and so forth.
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RETAIL PRODUCTS
Indian Retail Banking offers following products : Retail Deposits Products Saving and recurring account ,Recurring deposit account Current deposit account,Term Deposit account Zero balance account,Senior citizen account Retail loan account Home loan, auto loan, consumer loan, personnel loan education loan, credit card Retail Services : Safe deposit locker Depository services Banc assurance products
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1.
2.
3.
Todays retail banking sector is characterized by three basic features : Multiple products ( deposits, credit cards , insurance, and securities ) Multiple Channels of distribution (call centure, branch , internet and kiosk) Multiple customer groups ( consumer, SME, and corporate )
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For
banks, retail segment is the principal growth driver. The private sector banks like HDFC bank, ICICI bank are very aggressive in this segment. The critical success factor of the Banks, which are aggressively moving in the retail banking segment are wider distribution network, low cost funding, low operating cost, marketing capability, large product portfolio, proper credit appraisal, faster loan processing, flexible technology, and good recovery mechanism.
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ECONOMIC BACKDROP
Demographic forces Continued expansion of services sector
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Improvement in GDP. Improvement in per capita income. Globalization. Improvement of standard of living. Aspiration for quality life. Access to consumption financing. Statistics can be seen from the following charts.
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Whole sale banking refers to doing business banking business with industrial and business entity They are corporate, MNC, traders domestic business houses, public sector. Products : The products offered can be classified in four groups Fund based services : Term loan, working capital, short term finance bills discounting, export finance. Non fund based services :Bank guarantee, L/C, Value added services :cash management, vendor financing , forex, RTGS, Derivative desk, corporate salary account Internet banking: payment gateway services, supply chain management,
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INTERNATIONAL BANKING
Banking services catering to cross border transactions is called international banking. Banks are the active members of foreign exchange market and they provide certain type of services. Banks have been traditionally offering various services to the international business people. They are preshipment and post shipment credit-export and import financing,
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Operational Controls Sources of Operational Controls: External Sources Vested with Reserve Bank of India Internal Control Respective Banks
DR.P.R.Kulkarni
i. ii.
iii.
iv. v. vi.
Internal Control Areas: Maintenance of Documents and Records Adequate Information Storage and Retrieval Mechanism Maintenance of CRAR Asset-Liability Management System Organizational Structure Audit and Vigilance
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