Professional Documents
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COMMERCIAL BANKS
Importance Most important financial institution in economy Banks are financial-services firms Principal source of credit Provide cheque books, credit or debit cards, electronic funds transfer etc. facility for effecting payments to creditors/suppliers
MANAGEMENT OF COMMERCIAL BANKS BY CA. R.C. AGARWAL
COMMERCIAL BANKS
Importance-CONT
Provide consultancy for financial planning, project planning Provide financial information Provide consumer loans, working capital finance Provide long term and short term loans Help governments in fulfilling plan and social objectives Success of banks depends on their ability to identify financial services demanded by public
Commercial Banks Savings Banks Cooperative Banks Mortgage Banks Community Banks Money Center Banks Investment Banks Merchant Banks International Banks Wholesale Banks Retail Banks
Limited Purpose Banks Bankers Banks Minority Banks National Banks State Banks Insured Banks Member Banks Affiliated Banks Virtual Banks Fringe Banks Universal Banks
What is a Bank
Produce and sale professional management of public funds and perform many roles e.g.
Trust function Credit function Investment planning function Payments function Savings function Cash management function Investment banking/underwriting function Brokerage function
Intermediator
Transforming savings to credit to business and others Making payments for goods and services on behalf of customers Providing guarantee on behalf of customers
Payments
Guarantor
Consumer finance Financial advice Leasing finance Venture capital loans Selling insurance products Selling mutual fund products Selling pension schemes and retirement plans Security brokerage and investment services Merchant banking and issue related services Portfolio management services
Collection of savings and distribution for industrial investment Capital formation and accelerating the economic growth
Government of India Regulatory body Scheduled/unscheduled banks Public sector banks Old generation private sector banks New generation private sector banks-1991 Co-operative banks Regional rural banks Local area banks-1997 Foreign banks
MANAGEMENT OF COMMERCIAL BANKS BY CA. R.C. AGARWAL
Financial Institutions Micro-finance companies Non-banking finance companies Co-operative credit societies Money lenders
there are three phases Up to 1951 1951 to 1990 Early nineties onwards
PRE - 1951
Control of money lenders No laws total private sector No regulatory body Hardly any industrialization Main concentration on traditional agriculture Banking Industry had little access to outside savings
MANAGEMENT OF COMMERCIAL BANKS BY CA. R.C. AGARWAL
1951 to 1990
Private to public sectormixed economy Planned economic processFirst plan from 1951
MANAGEMENT OF COMMERCIAL BANKS BY CA. R.C. AGARWAL
Public ownership
Nationalisation Reserve Bank of India (RBI)- 1948 State Bank of India (SBI) 1956 14 major banks nationalised 1969 with deposits of 50 crore & above Nationalisation of 6 more banks - 1980
`Development banks-cont Industrial Development Bank of India (IDBI) 1964 State Industrial Development Corp. (SIDC) State Industrial Investment Cop. (SIIC) Small Industrial Development Bank of India (SIDBI) National Bank for Agriculture and Rural Development (NABARD) - 1982
Commercial banks
Continued old way of deposit banking and of short term credit to trade and finance Introduction of selective credit control (control through quantum, rate of interest, margin etc.) Started refinance based term lending and underwriting of new issues Started directly subscribing to shares and debentures and lending against such securities
Commercial banks
Provide finance to SSI, Exports & Agriculture Credit Guarantee Scheme (CGS) - 1960 for SSI finance upto 75% of amount defaulted or guarantee amount whichever lower, maximum 7.5 lacks for WC and 2.5 lacks for TL Export Credit & Guarantee Corp. (ECGC) Ltd.-1964 Agriculture Refinance Corp. - 1963 for refinance to institutions & banks Extensive Branch expansion Lead district and service area approach
Protection to customers
Foreign
Exchange Regulation Act (FERA) 1973 -now converted to Foreign Exchange Management Act (FEMA) Banking regulations Customer service guidelines
POST NINETIES
IFCI to IFCI Ltd. IDBI to IDBI Ltd. & to IDBI bank ICICI to ICICI bank Number of private banks set up Govt. holding in banks diluted by more than 40%
up of universal banks One stop banking PSB Boards to have share holder representatives
for refinance has shrunk from banks Focus on Non fund based financeCapital adequacy, asset classification & provisioning norms and accounting standards made applicable to DFIs and FIs
Merchant banking, Project counseling, Portfolio management, Credit syndication, New issue management, Mergers and acquisitions - advisors, Corporate advisory services, Debenture trusteeship, Sponsorship of mutual funds etc.
Commercial Banks
Economic environment Statutory Liquidity Ratio (SLR) 38.5% , Cash Reserve Ratio (CRR) 15% + 10% (incremental ratio) of net demand & time liabilities (NDTL)
CRR now is 4.5% SLR is 23% Item / Week Ended 2007 2008 2009
Sep. 7 Aug. 1 Sept. 5
2012
Sept 22
7.00 8.75
9.00
4.5
Lower intt. on SLR and CRR Directed credit programmes to Priority sector Narsimham committee-I
MANAGEMENT OF COMMERCIAL BANKS BY CA. R.C. AGARWAL
Details 1951 19.7.69 1997 2012 Aug 31 No. of SCBs+Non-SCBs (Exc.RRB) 92 85 101 171 RRB 196 86 Branches (SCBs/Non-SCBs) 4,151 8,261 63,700 85,000 Deposits 919 5,540 5,07,533 63,40,420 Advances 727 3,813 2,82,702 47,22,600 Advance to priority Sec. 1,00,000 19,00,000
MANAGEMENT OF COMMERCIAL BANKS BY CA. R.C. AGARWAL
Total Reserves 31.8.2012 (US$ Mn.) 290,461.6 Foreign exchange 257,620.1 Gold 26,239.4 Others 6,602.1 Currency with the public (Crore) 10,67,030 Credit to Govt. (RBI & Banks) (Crores) 25,94,820
1951
1969
No of A/c credit No. of A/cs deposit % Demand deposits % of fixed deposit Credit deposit ratio Cheques cleared No. Amount Rs. Billion
67 33
1995 2012 11,00,000 3,00,00,000 18,00,000 36,00,00,000 50 35 50 65 60% 75% 1341.87 ml. 115,959.60
1997 19 8 196
2011 19 6 82
Commercial Banks
Directed credit Scope of priority sector expended by including finance to SIDC, SFC, refinance to RRB and for Foreign and new private sector banks investment in SIDBI bonds Heavy increase in branches, unprecedented growth in deposits and advances mainly priority sector Impressive progress in achieving social objectives Heavy fall in productivity and profitability High cost/exp. due to branch expansion in RU/SU
Commercial Banks
Commercial Banks
Capital adequacy norms 9% (capital to risk weighted asset ratio) Income recognition, Asset classification and Provisioning norms
Commercial Banks
Commercial Banks
Board of Industrial Finance and Reconstruction (BIFR) This has not been very successful experiment Debt recovery tribunals-1993 8 recovery tribunals ONE appellate tribunal in Mumbai Helped in the recovery of bad advances Securitization Act It has given extensive powers to banks to take possession of assets and auction the same to recover the dues Sale of NPA accounts in lots
MANAGEMENT OF COMMERCIAL BANKS BY CA. R.C. AGARWAL
Commercial Banks
Regional rural banks Sponsored by PSBs- 196 banks now to RRBs 82 Branch licensing procedure - liberalized 1994 Foreign banks Allowed to open branches on reciprocal arrangement Permitted to invest upto 20%, within overall 40% investment, in private sector banks They are exempt from target credit in agri. finance
MANAGEMENT OF COMMERCIAL BANKS BY CA. R.C. AGARWAL
Commercial Banks
Commercial Banks
Commercial Banks
Mutual Funds
Bank subsidiaries sponsored Many banks have started marketing the products
LATEST DEVELOPMENTS
Indian economy more strong than many developed countries Conservative approach of RBI and Banks helped China bank allowed to open branch in India Interest rates started moving upward side Credit off-take slow High inflation Problems in US economy Problems in economy of European countries
MANAGEMENT OF COMMERCIAL BANKS BY CA. R.C. AGARWAL