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MBA 3 SEM MA 0038 BANK MANAGEMENT ASSIGNMENT Q1. Write about the financial services provided by banks. Ans1.

Commercial banks differ from investment banks. Most financial consumers think of “the bank” as a place to keep liquid financial resources, such as checking accounts and savings accounts. A consumer may have personal accounts at a commercial bank. The commercial bank’s primary business involves taking in financial assets as deposits then lending these assets to other customers at a rate of interest. The interest rate the bank charges on loans and revolving lines of credit or other credit facilities will depend on the current interest rate environment. A consumer bank, such as a credit union or savings bank, may focus on the personal banking needs of a specific group or industry. An investment bank raises capital for businesses. The investment bank works with businesses to sell loans offered by the company called bonds. Bonds are debts owed by the company to investors. The investment bank distributes the bond issue to customers. The investment bank may choose to distribute publicly traded bonds to clients, or arrange a private placement of the client company’s debt directly with another company. The investment bank prices the debt according to the current yield curve and the company’s credit rating. A company's credit rating, like a consumer's FICA credit score, helps the company pay less to sell bonds in the public or private markets. Investment banks also raise capital for client companies by arranging equity issues, called stock. Investment banks receive fees from clients to raise capital. Many investment banks employ professional sales and marketing teams to distribute clients’ debt and equity issues.

Banking services
The primary operations of banks include: 
      

Keeping money safe while also allowing withdrawals when needed Issuance of checkbooks so that bills can be paid and other kinds of payments can be delivered by post Provide personal loans, commercial loans, and mortgage loans (typically loans to purchase a home, property or business) Issuance of credit cards and processing of credit card transactions and billing Issuance of debit cards for use as a substitute for checks Allow financial transactions at branches or by using Automatic Teller Machines (ATMs) Provide wire transfers of funds and Electronic fund transfers between banks Facilitation of standing orders and direct debits, so payments for bills can be made automatically

Price results in revenue and hence cash flows . Provide a check guaranteed by the Bank itself and prepaid by the customer. especially for the major players .For banks saddled with higher levels of nonperforming assests. The basic objectives pursued by banks in pricing their business loans are :  PROFIT-One of the major objectives of banks in granting business loans is profit maximization. Q2.banks are finding their net interest margins and operating profits under pressure. CASH FLOW.Market leaders will have normally this as their principal objective as retaining their position in the market is critical for them.Pricing of loan products along with liability products gain all the more significance for generating adequate business . SURVIVAL-Banks facing intense competition find that they need to adjust prices for increasing the volume of business that will help recover the costs and avoid losses. Notary service for financial and other documents Accepting the deposits from customer and provide the credit facilities to them. MARKET SHARE. Provide internet banking system to facilitate the customers to view and operate their respective accounts through internet.      Provide overdraft agreements for the temporary advancement of the Bank's own money to meet monthly spending commitments of a customer in their current account.In the competitive era. marketing is more of warfare and banks aim to occupy as large a territory as they can.banks cannot just survive .Survival in the market is the major concern for such banks and it becomes a critical objective of pricing for them.Price can effect cash flow in two ways:    . but are keen in their relative positions as reflected by the criteria like market share. What are the basic objectives which the banks persue while pricing their business loans? Ans2. Without making a decent profit in every banking operation .Banks which have been facing declining volumes of business are faced with the greatest challenge of regaining their viability .the situation is grave and calls for survival strategies . Provide Charge card advances of the Bank's own money for customers wishing to settle credit advances monthly.severely eroding their capacity to extend fresh loaning and also having a severe impact on their capital adequacy .Business these days are merely pursuing an increase in business in the absolute terms.The banking industry is witnessing the market forces at play vigorously. Maintaining or increasing market share is an important objective. Any adjustment to cash flow is possible through a suitable modification in price and it is an important objective for bankswhen cash flow assumes particularly greater significance either for meeting some larger cash outlays or when faced with cash crunch. such as a cashier's check or certified check.Profitability is an area of concern for bankers these days.keeping their costs at the minimum possible level and getting revenue.With intense competition .

by increase in business thereby accelerating conversion of operation into profits. When an implementation is effective. and most importantly. The overall goals are to find. processes. it generally denotes a company-wide business strategy embracing all client-facing departments and even beyond. This approach tries to disambiguiously transcend the simple post purchase-exchange process with a customer to make more truthful and richer contact by providing a more holistic.Some of the products like bank guarantee and letters of credit which could be considered at the maturity stage of the life cycle . entice former clients back into the fold. As a practice. and reduce the costs of marketing and client service. nurture and retain those the company already has. PR. and uses the experience to create stronger ties.This could be the objective for the market leaders in respect to the products in the maturity stage of the life cycle.are to some extent priced by banks with an objective to have a stable demand for such products and for earning the desired level. This includes tools for managing relationships with customers that goes beyond simple demographic and customer service data. personalized purchase. It also involves using technology to organize.Firms may seek to stabilize demand and sales of their products by setting suitable price levels. Relationship marketing is a broadly recognized. With the growth of the internet and mobile platforms.one by advancing the cash inflow through shorter credit terms and two . attract and win new clients. today. Once simply a label for a category of software tools.Relationship marketing was first defined as a form of marketing developed from direct response marketing campaigns which emphasizes customer retention and satisfaction. Explain. automate those marketing and communication activities on concrete marketing sequences that could run in autopilot. synchronize business processes. Ans3. Relationship marketing is an effective medium for marketing in a service industry like banking. and reduce operational costs. (a combination of search optimization and strategic content). Relationship marketing refers to a short-term arrangement where both the buyer and seller have an interest in providing a more satisfying exchange. relationship marketing differs from other forms of marketing in that it recognizes the long term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages. relationship marketing has continued to evolve and move forward as technology opens more collaborative and social communication channels. rather than a dominant focus on sales transactions. people. and technology work in synergy to increase profitability. widely-implemented strategy for managing and nurturing a company’s interactions with clients and sales prospects.  STATUS QUO. Q3. (also known as marketing sequences). . social media and application development. (principally sales and marketing activities). Relationship marketing extends to include inbound marketing efforts.

When the customer deposit money with the bank. every deposit creates a loan. The money that commercial banks supply is called credit money. relationship marketing being one of these attempts. Central bank is the first source of money supply in the form of currency in circulation. Arguably. Professor Sayers says. Fornicatell and Wernerfelt used the term defensive marketing for attempts to reduce customer turnover and increase customer disloyalty. Over the decades. customer value has been greatly enriched by these contributions. The Total Volume of money in the economy should be adequate to facilitate the various types of economic activities such as production. Hence banks keeps a certain amount of deposits as reserves which is known as cash reserve ratio and provide the balance amount as loans and advances. This money will not be withdrawn immediately by them. they create credit or bank money also. Commercial banks give loans and . the bank can lend the remaining portion of primary deposits. Explain the credit process.According to Liam Alvey. "Banks are not merely purveyors of money. The process of 'Credit Creation' begins with banks lending money out of primary deposits. but in an important sense. There are two components to defensive marketing: increasing customer satisfaction and increasing switching barriers. Other financial institutions transfer money from the lenders to the borrowers. Modern consumer marketing originated in the 1960s and 1970s as companies found it more profitable to sell relatively low-value products to masses of customers. and when there is an ongoing and periodic desire for the product or service. Q4. Primary deposits are those deposits which are deposited in banks. attempts have been made to broaden the scope of marketing. After maintaining the required reserves. The process of credit creation occurs when banks accepts deposits and provide loans and advances. they are called primary deposits. The commercial banks are the second most important sources of money supply. The Reserve Bank of Indian is the note issuing authority of the country.It constitutes the major component of money supply in the economy commercial banks differs from other financial institutions in this aspect. relationship marketing can be applied when there are competitive product alternatives for customers to choose from. while offensive marketing focused on "liberating" dissatisfied customers from your new customers. Thus. In fact banks cannot lend the entire primary deposits as they are required to maintain a certain proportion of primary deposits in the form of reserves with the RBI under RBI & Banking Regulation Act. Ans4. Defensive marketing focused on reducing or managing the dissatisfaction of your customers. This customer-retention approach was contrasted with "offensive marketing" which involved obtaining new customers and increasing customers' purchase frequency. The RBI ensures availability of currency to meet the transaction needs of the economy. Here bank's lend the money and the process of credit creation starts Credit creation is one of the important functions of a commercial bank. they are the manufacturers of money". distribution and consumption. Commercial banks while performing the same function.

It open an account in the name of the borrower and deposits the amount in that account. as people have long understood. any time anyone wants to create a new business. whether it is to make a large purchase. really is a driving force and affects many different aspects of people's lives. The loan amount can be withdrawn by means of checks. and negotiation. But the bank does not give the loan amount directly. or "borrow. it seems clear that it would be put to better use by allowing it to serve as investments for others. Nearly everyone has borrowed money at some point. Q5. every loan creates a deposit. A part of the deposit will be kept as a reserve and the balance will be used for giving loans and advances. While paying they issue a checks against these deposits. or simply to acquire goods now that they will pay for later (credit). financial intermediation is the process by which the financial intermediaries--usually banks or other similar firms--borrow money from one source to give it to another company that needs funding. Intermediation: A situation in which a financial institution stands between counterparties in a transaction. Although it seems risky to give one person's money to someone else while it is not being used. In this complex environment of spending. it is called Multiple Credit Creation. Money. Anyone who has any basic idea of how the economy and financial world operates understands that borrowing money is an integral part of life. the reality is that this operation actually . Basically. Therefore. financial intermediation has an important role Most people probably know that financial intermediation exists and takes place without recognizing it by name. These deposits created by banks with the help of primary deposits are called derivative deposits.advances against some security to the public." this money. They create a deposits while lending money also. when people put their money in a bank or other savings fund. For that bank. this money that is to be borrowed has to come from some source. a bank usually serves as a financial intermediary by providing a mortgage to the buyer to pay the seller. earning. Thus. investment or resources. allowing other companies to use to create or expand their own businesses. When all the banks involve in this process. In some non-traditional transactions. like buying a house or car. the reality is that these processes are vitally important to the success. corn) and immediately re-sell it for a profit to a third party. and continuance of any country. Most transactions requiring a loan to one of the parties include intermediation Financial intermediation is an essential part of the economy of the countries of the world. To put it simply. borrowing money for investment and funding is critical to the success of the fledgling company. in the sale of a house. deposit it in another bank. This process is repeated by other banks. Clearly. Since the money is not being used sitting in the bank. and in many cases this source is financial intermediaries. Though many people may not understand economics or the way businesses and markets operate. Financial intermediation is so important because banks are responsible for most of the financing that occurs in economies. Customers use these loans to make payments. this will be the primary deposit. Ans5. Explain the intermediation process of banks. Capitalism is centered on money because it is the ultimate goal business people seek and what is also required to reach that goal.g. The person who receives the checks. a bank may buy a product (e. For example. these financial intermediaries can then use. prosperity. Any big endeavor requires an initial outlay of money that most people do not have at their disposal.

OPERATING EFFICIENCIES.To complicate.We shall analyze the strategies to control the non-interest expenses. Others you will be able to implement immediately.The basic concept of banking is mobilizing the deposits from the public and investing in the forms of loans.An important way to save money is to reduce expenses. The cost management strategies are allocating resources to the most profitable lines of business to achieve improved performance. customer loyalty.INTEREST EXPENSES The commercial banks operate in a competitive environment . Always keep in mind that it’s not just about cheaper. There are few methods of expense management strategies: EXPENSE REDUCTION. Q6. The bank management provides targets under non. margin. quality. operational efficiency can be defined as the ratio between the input to run a business operation and the output gained from the business. What you’ll need first.The income recognition on asset deprives the bank the benefit of considering the entire interest on loan as income. complexity or opportunities. "efficiency" and "productivity" are often used interchangeably. Most importantly. Some will require a small up-front investment but have a substantial long-term payoff. What are the strategies to manage non. then you can look at ways to cut fluff and lower the cost of your required living expense.is occasionally used when meaning operational efficiency. There are two components under non -interest expenses. This is cost management strategy.interest expense to all branches within which they are required to spend during the year. Inputs would typically be money (cost). . new customers. is to understand that reducing expenses is a lifestyle change and a change in your thinking patterns. is a clear idea of where your money is going.interest expenses? Ans6.not limited to efficiency . Analyze your needs and do the math. Never let yourself believe that pennies don't count. The net interest margin is low. Non -interest expenses represent expenditure other than interest paid on deposit and salaries and wages paid to staff. STRATEGIES TO MANAGE NON. From time to time "operating efficiency" is also used with the same meaning as "operational efficiency". Your ability to implement those will depend on available cash and your budget. Some of these steps will take a bit of planning and investigation but they will be well worth the effort. There are a lot of ways you can stretch your dollars and help avoid that "too much month at the end of the money" feeling. people (headcount) or time/effort. Outputs would typically be money (revenue. The interest on loans is comparatively low when compared to the interest paid on deposits. The terms "operational efficiency". An explanation to the difference between efficiency and (total factor) productivity is found in "An Introduction to Efficiency and Productivity Analysis". the output to input ratio improves. market differentiation.In a business context. innovation. it’s about efficiency. cash). This process primarily cut costs and increases the profitability of the bank. "operational excellence" which is about continuous improvement . they are occupancy expenses and other operating expenses. however. When improving operational efficiency.benefits people a great deal because new businesses stimulate the economy and the money the banks can make from this lending procedure helps keep them in operation. speed & agility. as well. headcount productivity.

streamlining processes and improving performance across all of your marketing. It’s no surprise that an analysis of Fortune 500 companies over the last decade confirms that growth is the key to shareholder value. .The top line is rapidly becoming “top of mind” as companies try to seize the growth opportunities of a rebounding economy. Our approach focuses on increasing cash flow while holding down associated Selling.REVENUE ENHANCEMENT. sales and service activities. At our organization. General & Administrative (SG&A) costs. Revenue Enhancement is about making money— this quarter.