1 / 63

Welcome to IIBF’s - JAIIB Virtual Classes

Welcome to IIBF’s - JAIIB Virtual Classes. PRINCIPLES OF BANKING Module A & B April 15/2008. Financial System in India. Financial Sector consists of three main segments viz., 1) Financial institutions -banks, mutual funds, insurance companies 2) Financial markets -money market,

tex
Download Presentation

Welcome to IIBF’s - JAIIB Virtual Classes

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Welcome toIIBF’s - JAIIB Virtual Classes PRINCIPLES OF BANKING Module A & B April 15/2008

  2. Financial System in India • Financial Sector consists of three main segments viz., • 1) Financial institutions -banks, mutual funds, insurance companies • 2) Financial markets -money market, debt market,capital market, forex market • 3) Financial products -loans, deposits, bonds, equities

  3. Financial Sector - Regulators

  4. Banking in India

  5. Banking in India - Banking in India is governed by BR 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

  6. 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) land development banks • BR Act allows RBI (Sec 22) to issue licence for banks

  7. Banking Regulation Act,1949 (BR Act)-2

  8. 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

  9. 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

  10. 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)gave wide powers to RBI as regards to establishment of new banks/mergers and amalgamation of banks,opening of new branches,etc • BR Act,1949 gave RBI powers to regulate,superivse and develop the banking system in India

  11. Reserve Bank of India – 2

  12. 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

  13. Certificates of Deposit • CDs are short-term borrowings in the form of UPN issued by scheduled commercial banks and are freely 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 period between 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 the market/investors

  14. Commercial Paper • Short-term borrowings by corporates, financial institutions, primary dealers from the money market • Can be issued in the physical form (Usance Promissory Note) 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 issuing company • Issued at discount to the face value

  15. Repos • Repo (repurchase agreement) instruments enable collateralised short-term borrowing through the selling of debt instruments • A security is sold with an agreement to repurchase it at a pre-determined date and rate • Reverse repo is a mirror image of repo and reflects the acquisition of a security with a simultaneous commitment to resell

  16. INDIAN CAPITAL MARKET • Indian Capital Market plays an important role in the economic development of the country • It provides opportunities for investors to invest in the market 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 in India

  17. Securities & Exchange Board of India (SEBI) • SEBI was constituted on April 12/1988, and obtained the statutory powers in March,1992 • SEBI’s functions: • To protect the interests of investors • To recognize the business in stock exchanges and other security markets • To supervise and regulate work of intermediaries, such as stock brokers merchant bankers/custodians depositories/bankers to the issues

  18. Association of Mutual Funds in India (AMFI) • AMFI is an association as a non profit organization. • AMFI represents mutual funds in India and working for healthy growth of the Mutual Funds. • AMFI conduct examinations for MF executives as part of their training activities

  19. Insurance Regulatory & Development Authority (IRDA) • The regulator for insurance business in India is IRDA. • IRDA was established in 2000 • IRDA’s functions: • To regulate, promote and ensure orderly growth of the insurance business and reinsurance business in India • To protect the interests of policy holders

  20. Insurance Sector • Insurance Sector in India can be divided into two main sections

  21. Financial Intermediaries (1) • Mutual Funds- As financial intermediary promote savings and mobilise funds which are invested in the stock market and bond market • MFs are associations or trusts of public members and assist them in making investments in the financial instruments 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 their value 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

  22. Financial Intermediaries (2) • Merchant banking- Another important financial intermediary which manages and underwrites new issues, undertake syndication 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 commercial banks

  23. 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 20th century, on account of the Swadeshi movement a number of join stock banks were established by Indians like Bank of India, Bank of Baroda and 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 Banking Enquiry Committee to trace the reasons for the failure of banks. • The Reserve Bank of India Act was passed in 1934 and the RBI came into existence in 1935 and RBI was nationalised in 1949 • The Banking Regulation Act,1949 gave wide powers to RBI to act as the regulator for banks in India

  24. Indian Banking -Significant events 2 • In 1955 State Bank of India became the successor to the Imperial Bank of India ,under the State Bank of India Act,1955. • In 1959 State Bank of India (Subsidiary Banks) Act was passed to enable SBI to take over State Associated banks as SBI’s subsidiaries • In 1969 the Government of India nationalised 14 major commercial banks having deposits of Rs.50 crore or more • In 1975 Regional Rural Banks were established under RRB 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

  25. Progress of banking in India • In the liberalised, privatised and globalised environment, banks opeating in India have diversified their banking activities by offering Para Banking facilities like • Merchant banking/Mutual funds • ATMs/Credit Cards/Internet banking • Venture capital funds • Factoring • Bancassurance

  26. Classification of Banks-1

  27. Classification of Banks-2

  28. Classification of Banks-3 • Public Sector Banks =State Bank of India+SBI’s associate banks+ Nationalised banks • Private Sector Banks=Indian Private Sector Banks (Old/New generation banks)+Foreign banks in India • Other Banks=Regional Rural Banks(RRB)

  29. Functions of Banks - 1

  30. RESERVE BANK OF INDIA • SUPERVISORY & REGLATORY • Issuance of currency notes • Banker’s Banker • Lender of the last resort • Credit Control & Monetary Policy • Exchange Control & Forex Management • Funds Transfer

  31. CREDIT CONTROL • QUANTITATIVE CREDIT CONTROL • QUALITATIVE CEDIT CONTROL’ • CRR & SLR • BANK RATE • OPEN MARKET OPERATIONS

  32. Functions of Banks - 2 • Commercial Banks-Core Banking Functions • Acceptance of deposits from public • Lending funds to public/corporates • Investing funds in various opportunities • Collecting cheques/drafts and other Negotiable Instruments • Remitting funds

  33. Functions of Banks-3 • Commercial Banks – Para Banking Services • 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, merchant banking services • Acting as executors and trustees

  34. Commercial Banks DEPOSIT PRODUCTS

  35. Non-Resident Accounts - 1

  36. Foreign Currency Non-residentDeposit Accounts –FCNR (B) • FCNR (B) accounts • NRIs,PIOs,residing outside India can open FCNR (B) accounts • FCNR (B) accounts are maintained as fixed deposits 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 is also earned in such foreign currencies • Repatriation of funds (principal, interest) is allowed

  37. Loan Products – Fund Based

  38. Loan Products –Non Fund Based

  39. 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

  40. Know Your Customer (KYC) -2 • Application of KYC norms have become important 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.

  41. Know Your Customer (KYC) -3

  42. Bank Customers - 1

  43. Bank Customers - 2

  44. BANKER-CUSTOMERRELATIONSHIP • DEBTOR-CREDITOR • CREDITOR-DEBTOR • AGENT-PRINCIPAL • LESSOR-LESSEE • BAILEE-BAILOR

  45. CHEQUES

  46. NEGOTIABLE INSTRUMENTSPaying Banker:

  47. NEGOTIABLE INSTRUMENTS BANKER’S DUTIES & RESPONSIBILITIES C0LLECTING BANKER COLLECTION OF CHEQUES

  48. Six Cs • Character • Capital • Capacity • Collateral • Condition • Compliance

  49. Working Capital Cycle

  50. CHARGES • HYPOTHECATION • PLEDGE • MORTGAGE • ASSIGNMENT • LIEN • SET OFF

More Related