Important acts relating to Banking

Banking Regulation Act,1949 RBI Act,1934 & RBI Act, 1948 SBI Act,1955, General Regulations SBI Act,1956 Bankers Book Evidence Act,1891 Negotiable Instruments Act,1881 Indian Contract Act,1872 Suretys Liability Partnership Act,1932 Companies Act,1956 Criminal Procedure Code, 1973 Consumer Protection Act, 1986

Indian Penal Code, 1860 Prevention of Corruption Act, 1988 Income Tax Act Banking Companies ( acquisition and transfer of undertakings) Act, 1970/1980 Nationalized Banks (management and miscellaneous provisions) Schemes, 1970/1980 Banking Services Commission Act, 1984 SBI Subsidiaries Act, 1959 IDBI Act, 1964 Industrial Finance Corporation of India Act, 1948 Capital Issues (control act, 1947) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SRFAESI) Act, 2002 Securities and Exchange Board of India Act, 1992

Important Financial Instituitions

EXIM Bank DICGC IDBI SIDBI NABARD Discount of Finance House of India Stock Holding Corporation Of India National Stock Exchange S.T.C.I (Securities trading corporation of India), 1994 National Housing Bank, 1988 Indian Banks Association Joint Publicity Committee

Structure of Indian Banking

Central Bank of the country: RBI Commercial Banks: Public sectors & Private Sector Nationalised banks. Branches of Banks incorporated outside India, Other Indian scheduled commercial banks, Non-scheduled banks, Pvt Local Area banks for Rural saving.

SBI GroupSBI & 7 associate

Regional Rural Banks- Co-operative banks, State Co-operative Banks, Distt Co-operative Banks Primary Co-operative Banks PACs- Primary Agricultural Society.

Land Development Banks State Land Development Banks Primary Land Development Banks
Development Banks (Term Lending Instituitions) All-India, ICICI- Industrial Credit and Investment Corporation of India State level- IFCI, IRBI, IIBI, IDBI, SFCs, SIDBI, NABARD, EXIM, ECGC, UTI, LIC, GIC, MHB

Phase of Banking Consolidation: 1951-1964

Banking Structure, Banking Regulation Act, 1949 replaced the Banking Companies Act. Public confidence Banking Policies & Practices i. Upsurge in credit to industry. ii. Diversification in form of financing. iii. Enlargement of functional coverage. iv. Credit authorization scheme- SSI, Exports, Agricultural Finance.

Phase of Innovative Banking: 1964-1990

Social Control. Organizational changes. National Credit Council. Agriculture Finance Corporation Ltd. Follow up of social control. Organizational framework of implementation of social control. Lead Bank Scheme (LBS). Nationalization. New Bill Market Scheme (NBMS). Tondon committee report. Bank credit to priority sector.

Autonomy Measures
Recruitment and creation of posts. Supervisory authority- BFS(Board of Financial Supervision). Appointment of CMPs/CEOs and Board Members. Narsimhan committee II on Banning of Sector Reforms, 1998. Approach to Reform/Re-organization. Directed Investments/Programmes and Interest Rates. Directed Credit Programmes. Capital Adequacy, Accounting Policies and relational Matters. Structural Organization. Organization, Methods and Procedures. Regulations and Supervision. Legislative Measures. Asset/Liability management- Risk Management. Earnings and Profitability.

Systems and Methods in Banks. Internal Systems. Human Resources Management. Technology upgradation. Structural issues- DFIS/PFIS, NBFCs. Rural and Small Industrial Credit. CDR Standing Forum, CDR Empowered Group. CDR Cell.

Elements of Tier-I Capital

Paid up capital, statutory reserves, capital reserves equity investment in subsidiaries, intangible assets and losses in current period and those brought forward from previous periods should be deducted from Tier-I capital.

Elements of Tier-II
Undisclosed reserves & Cumulative Perpetual Shares. Re-evaluation Reserves. General Provision & Loss Reserves. Hybrid Debt Capital Reserves. Subordinated Debt. Reporting Requirements. Exposure Norms. Credit Exposures to Individual/Group Borrowers. Investment Exposures. Credit Exposure to Industry or certain sectors. Real Estate.

 Exposure to Leasing, Hire-Purchase & Factoring Services. Exposure to Indian Joint Ventures/ Wholly owned subsidiaries abroad. Exposure limits on Advances against Shares and Holding of Shares as Investment. Statutory limit on Shareholding Companies. Regulatory Limits. Advances against Shares to Individuals. Advances against limits of Mutual Funds. Bank Finance to Employees to buy shares of their own Companies. Advances against shares of Stock Brokers and Market Makers. Bank loans for Financing Promoters Contributions. Bridge Loans.

Exposure to Unsecured Guarantees & Unsecured Advances. Exposure Norms for Investments. Investments in Shares, Debentures and Bonds. Investments in New Bonds of a Corporate. Exposure limit on Shareholding of companies. Investment in Venture Capital (VC). Investment in Subordinated Debt Instruments. Underwriting of Corporate Shares & Debentures. Prohibitions on Underwriting Options. Underwriting of Bonds of Public Sector Undertakings. Safety Net schemes for Public Issues of Shares & Debentures. Lending to Non-Banking Financial Companies.

Operational risk & the methods for calculating operational risks, capital charges of banks, under Basel committee new framework.

 Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risks (i.e. exposure to fines, penalties or punitive damages), but excludes strategic and reputational risks.

Measurement methodologies
The revised framework prescribes 3 approaches for calculating operational risk capital charges are: Basic indicator approach. Standardized approach. Advanced measurement approaches.

Basic Indicator Approach

The capital for operational risk should be equal to the average over the previous three years of a fixed percentage (denoted by alpha) of positive annual gross income. Figures for any year in which annual gross income or zero should be excluded from both the numerator or denominator when calculating the average. The capital charge may be represented as follows: KBIA= [ ( GI 1.n x )]/N Where KBIA= the capital charge under the basic indicator approach. GI = annual Gross Income, where positive, over in previous three years. n= no. of the previous three years for which GI is positive. = 15%, which is set by the committee

The Standard Approach

In the standard approach, banks activities are divided into 8 business lines i.e. Corporate finance, trading & sales, Retail Banking, Commercial Banking, Payment and Settlement, Agency Services, Asset Management and Retail Brokerage. Within each business line, GI is treated as a broad indicator for determining the operational risk exposure. The capital charge for each business line is calculated by multiplying GI by a factor (denoted by beta) assigned to that business line. Beta serves as a proxy for the industry wide relationship between the operational risk loss experience for a given business line and in aggregate GI for that business line.

The capital charge for operational risk can be represented as under: KTSA= { years 1-3 max [GI18 x 1-8, 0]}/3 Where KTSA= the capital charge under the standard approach, GI 1-8 = annual GI in a given year for each of the 8 business line. 1-8=a fixed percentage, set by the committee, relating to the level of required capital to the level of GI for each of the 8 business lines.

Advanced measurement approaches

Under the AMA, the regulatory capital requirements will equal the risk measure generated by the banks internal operational risk measurement system using the quantitative and qualitative criteria for the AMA, subject to supervisory approval.