BANKING

WEEK1
RBI website
CORPORATE BANKING
NBFC
RETAIL
WHOLESALE VS RETAIL BUSINESS. WHICH IS BETTER?

WEEK2

Jan dhan yojna

Banking Correspondents (BCs) are individuals/entities engaged by a bank in

India (commercial banks, Regional Rural Banks (RRBs) and Local
Area Banks (LABs)) for providing banking services in unbanked / under-
banked geographical territories.
https://iasgatewayy.com/banking-correspondent-bc/#:~:text=Banking
%20Correspondents%20(BCs)%20are%20individuals,%2F%20under
%2Dbanked%20geographical%20territories.

NEGATIVE INTEREST RATES

https://www.usatoday.com/story/money/2019/09/12/interest-rates-what-zero-
negative-rates-would-mean-you/2293676001/

RATE OF INTEREST
https://www.policybazaar.com/fixed-deposit-interest-rates/
WEEK3
- NET INTEREST INCOME / NET INTEREST MARGIN
- COURSEPLAN REFER (RBI WEBSITE ETC)
- CIA1 PERFORMANCE OF BANKS
- BANKING MARKET SHARE (PRIVATE, PUBLIC, FOREIGN) (PPT)
- BANKING BUSINESS NUMBERS (PPT)
- REVISE DIGITS (000’, 00,000,…..) mm, mmm….
- MSP (MINIMUM SUPPORT PRICE)

UNDER RETAIL
- MORTGAGE
- PERSONAL LOANS
- VEHICLE
- CREDIT CARDS
- PERSONAL

UNDER CORP
- WC
- LC
- GUARANTEES
- TERM LOAN (TL)

- CASH RESERVE RATIO ( BAL WITH RBI)

- INVESTMENT IS MOSTLY SLR (STATUTORY LIQUIDITY

RATIO)

RBI IS THE BANKER’S BANK

- REFER BANKING RESOURCES FILE
- HOW TO INDEX A SHEET IN EXCEL??

WHAT IS ANEMIC GROWTH RATE?

WHY ONLY 6.7% GROWTH? – PPT BANKING NUMBERS
- CORPORATE BANKS NOT BORROWING
- DEMAND FOR GOODS NOT THERE
- UNEMOLOYEMENT IS HIGH
- CORPORATES NOT REQUIRING WORKING CAPITAL FOR TERM
LOANS
- THEIR EXISTING CAPACITY ITSELF NOT BEING USED
- MONEY LENT BY BANK EARLIER, THE CORPORATES ARE NOT
REPAYING—it’s a stressed asset. A stressed asset can become
doubtful1- doubtful2 and NPA.
- HIGHER NON PERFORMING ASSETS (NPA)
Generally, 20% is a decent growth rate.

RETURN ON ADVANCES AND RETURN ON INVESTMENT

ROA WILL BE AROUND 15% AND ROI WILL BE ROUGHLY AROUND

7%

GROSS NPA OF BANKING SYSTEM- LEND MONEY & NOT REPAYING

ON MONEY LENT & PRINCIPLE IS LOST.
Around 9-14% npa in banking system.

BANKING IS A BUSINESS OF RISK

BANKING IS A BUSINESS OF LEVERAGE

ACCEPTING MONEY DEPOSITS & LENDING BORROWINGS

ACCEPTABLE DEBT-EQUITY RATIO:

MAX 2.5-3:1 (Equity)
https://www.investopedia.com/terms/d/debtequityratio.asp
 - HARSHAD MEHTA’S SCAM 1992

3-4% of NPA is normal. 14% is abnormal NPA

BALANCE SHEET ITEMS OF A BANK

Sc Sc
h     h  
1 Capital   6 Cash and Bank balances w
Balance with banks, Mon
2 Reserves and Surplus   7 and Short Notice
3 Deposits   8 Investments
4 Borrowings   9 Advances
5 Other Liabilities and Provisions   10 Fixed Assets
      11 Other Assets
         
  Total Liabilities     Total Assets
12 Contingent Liabilities

PROFIT AND LOSS ACCOUNT OF A BANK

15 Interest Expended   13 Interest Earned

16 Operating Expenses   14 Other Income
  Provisions and Contingencies      
         
  Net Profit      
         
 17 Significant Accounting Policies
18 Notes on Accounts

BETTER MANAGEMENT OF ASSETS AND CAPITAL LEADS TO

PRIVATIZATION OF BANKS.

- Diff between public and private sector banks functioning.

EMBEDDED OPTION- RIGHTS FOR DEPOSITOR TO ASK FOR MONEY

BACK BEFORE THE MATURITY.

IN CASE OF BORROWINGS THE GUY CANNOT ASK FOR MONEY

BEFORE IT MATURES.

MONEY AT CALL AND SHORT NOTICE

DEPOSIT ACCEPTED & WHEN LOAN IS REPAID MONEY COMES

IN FOR BANK (CASH INFLOW)

WHEN DEPOSIT IS REPAID OR WHEN MONEY LENT IS REPAID

MONEY GOES OUT (CASH OUTFLOW)

MORE INFLOW – SURPLUS FOR BANK, OTHERWISE DEFICIT.

MSF- MARGINAL STANDING FACILITY

Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of
India in an emergency situation when inter-bank liquidity dries up completely. ...
Under MSF, banks can borrow funds up to one percentage of their net demand and time
liabilities (NDTL).

What is LAF and MSF?

In order to provide an additional avenue for liquidity management to Regional Rural Banks
(RRBs), it has been decided that Liquidity Adjustment Facility (LAF) and Marginal Standing
Facility (MSF) will be extended to Scheduled RRBs meeting the following criteria:
Implemented Core Banking Solution (CBS)

FIA- FOREIGN INSTITUTIONAL INVESTOR

RRB- REGIONAL RURAL BANKS
CBS- CORE BANKING SOLUTIONS

INVESTMENTS IN B/S ARE SLR AND CASH/BANK BALANCE IS CRR (Note)

Bank interest around 3.25 for deposit/borrowings (google)

WEEK4

TYPES OF BANKS BASED ON ACTIVITY AND SIZE

- Commercial bank
- ETCC (PPT)

INVESTMENT BANK ARE INTO

- ASSET MGT
- CAPITAL RAISING
- TRADING ON SECURITIES
- PORTFOLIO MGT
- MERCHANT BANKING
- UNDERWRITING AND BROKING
- FINANCIAL ADVISORY SERVICES
- M&A and can raise short term funds
PAYMENTS BANK IS A RECENT CONCEPT IN INDIA

SMALL BANKS- EQUITAS HOLDINGS, ESAF MICROFINANCE &

INVESTMENT ETC. THEY PERFORM BASIC FUNCTIONS TO THE
CUSTOMERS.

FINANCIAL INCLUSION – EVERY INDIVIDUAL IN THE NATION SHD

BE ABLE TO PERFORM ONLINE BANKING

WHO CAN BE BUSINESS CORRESPONDENTS (BC’s) ?

SCOPE OF A BC

NON-BANKING FINANCE COMPANY (NBFC)

BANKS VS NBFC – NBFC CANNOT OPEN DEMAND DEPOSIT ACC –
Cant accept demand deposits.
Deposit insurance facility of DICGC is not available for its depositors unlike
banks.
RBI REGULARTIONS GOVERNING NBFC’s
SHADOW BANKS
CLASSIFICATION OF NBFC’S BASED ON LIABILITIES AND BASED ON
ACTIVITIES (method1 and method2 type of classification)

Method1 – deposit and non deposit taking . Deposit taking reg under RBI
Method2- Non deposit taking
Ie.- ASSET FINANCE COMPANY (LEASING, HIRE PURCHASE)
- LOAN COMPANY
- HOUSING FINANCE COMPANY
- INFRASTRUCTURE FINANCE COMPANY
- INVESTMENT COMPANY
- MICRO FINANCE COMPANY
EMBEDDED OPTION- DEPOSITOR CAN ASK FOR MONEY BACK
BEFORE MATURITY
NO EMBEDDED OPTION- CAN’T REPAY BEFORE MATURITY.

https://www.rbi.org.in/Scripts/FAQView.aspx?Id=92
https://timesofindia.indiatimes.com/india/ima-scam-all-you-want-to-know-about-ponzi-scam-
in-bengaluru/articleshow/72950311.cms
https://www.business-standard.com/about/what-is-saradha-scam
The most significant reform in the ordinance is RBI's increased control
over cooperative banks. India has been undergoing a silent banking crisis —
between 2013 and 2018, 127 banks had to be shut down by the RBI. Most of them
were unable to pay their depositors

There is no universal regulatory body for fintech entities in India. ... By and

large fintech products and services can be considered to fall under the purview of the
following regulators: the RBI; the Securities Exchange Board of  India (SEBI)
Note
STATE GOVERNMENT REGULATED SARADHA CHIT FUNDS.

FINANCIAL ASSET IS THE ONE WHERE THE MONEY IS LENT AND

INVESTED
ADVANCES VS INVESTMENT (BOTH ARE FINANCIAL ASSETS)

MFI – MGT FINANCIAL INSTITUTIONS

DFI- DEVELOPMENT FINANCIAL INSTITUTIONS:

- Refinancing institutions
- Term Lending Institutions
- Sector specific/ Specialized institutions
- Investment Institutions Etc

FINANCIAL SECTOR LEGISLATIVE REFORMS COMMITTEE

(FSLRC)

FSLRC ARCHITECUTRE WILL COMPRISE OF:

 - UNIFIED FINANCIAL AUTHORITY (UFA)
- RBI
- FINANCIAL SECTOR APPELLATE TRIBUNAL
- RESOLUTION CORPORTATION
- FINANCIAL REDRESSAL AGENCY
- FINANCIAL SECTOR DEVELOPMENT COUNCIL
- PUBLIC DEBT MANAGEMENT AGENCY

PREPAID PAYMENT INSTRUMENTS (PPI’s)

Bank Ombudsman
MAJOR BANKING REFORMS SINCE 1991

KYC/AML NORMS
INTEREST RATE ON DEPOSITS GOOGLE SIB 2020 & 2019
RBI RATIOS GC

IMPORTANT
https://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications

NOC & MODT HOME LOAN

BASEL NORMS

RISKS:
- CREDIT RISK
- MARKET RISK
- OPERATIONAL RISK
- LIQUIDITY RISK
RETURN ON ASSETS= NET INCOME/ AVERAGE TOTAL ASSETS
EQUITY MULTIPLIER= AVERAGE TOTAL ASSETS/ AVERAGE EQUITY
F(spread)= RETURN ON FUNDS – COST OF FUNDS

WHY BANKS RAISE CAPITAL FREQUENTLY? :>

- RISKY BUSINESS
- CAPTIAL EROSION / CAR
- LOW BUSINESS OR LESSER EMPLOYEMENT
- BAD DEBTS
- NOT ABLE TO REPAY
- ECONOMICAL DISTRESS
- CAPITAL COMES DOWN
- AS PER BASEL NORMS MINIMUM CAPITAL IS REQUIRED

THE PVT SECTOR BANKS DOESN’T GET AS MUCH AS AFFECTED

LIKE PUBLIC SECTOR BANKS.

WHOLESALE BANKING VS RETAIL BANKING

WHOLESALE DEPOSITS VS RETAIL DEPOSITS

SPREAD ANALYSIS AND NPA ANALYSIS

GENUINE DEFAULTER AND WILFUL DEFAULTER

NON PERFORMING ASSETS

https://www.investopedia.com/terms/n/non-performing-assets.asp#:~:text=A
%20nonperforming%20asset%20(NPA)%20refers,unable%20to%20meet
%20his%20obligations.
CAPITAL CONSERVATION BUFFER
https://www.esrb.europa.eu/national_policy/capital/html/index.en.html#:~:text=
The%20capital%20conservation%20buffer%20(CCoB,to%20conserve%20a
%20bank's%20capital.

PERFORMANCE OF BANKS
ASSET QUALITY – ADVANCES/NPA/EXPOSURE TO
INDUSTRIES/GOVERNANCE
SPREAD – RETURN ON FUNDS – COST OF FUNDS (CASA
WHOLESALE & RETAIL)
COST MANAGEMENT- BUSINESS EXPENDITURE, PROFIT
EXPENDITURE

PUBLIC SECTOR BANKS & PRIVATE SECTOR BANKS

More than 51 percent of share capital if owned by govt then it is a public sector
bank

WHEN U BRING PROVISION ON NPA WITH OPR PROFIT THEN U GET

NET PROFIT
DON’T CARRY A COSTLY DEPOSIT FOR LONGER PERIOD
EX- 10 PERCENT DEPOSIT FOR 5 YRS ..
A BANK CAN BORROW FROM OTHER BANKS & CAN ALSO RAISE
MONEY FROM FOREIGN BANKS

DEPOSIT VS BORROWINGS (DIFFERENCE)

BANKING SCHEDULES (IMPORTANT)
SCHEDULE 1,2,3,4….
SCHEDULE 4 IS WHERE FROM THEY HAVE BORROWED MONEY
COST OF BORROWINGS VS COST OF DEPOSITS
INVESTMENTS AND ADVANCES
ASSET QUALITY
COST OF FUNDS

4 AREAS OF BANK
- ASSET QUALITY
- SPREAD ETCC

PUBLIC SECTOR BANKS LOAN POOR IN ASSET QUALITY

MANAGEMENT COMPARED TO PRIVATE SECTOR WHY?

REASONS:
- COLLATERAL
- INTESNTITY OF RECOVERY RATES OF LOANS
- CONTINUOUS FOLLOW UP OF LOAN
- QUALITY OF SANCTIONING PROPOSAL
- SECURITY

LESSER THE CONCENTRATION OF ADVANCES BETTER IT IS

HENCE CONCENTRATION SHOULD BE LESS ALWAYS.

SPREAD THE RISK IT IS GOOD AND CONCENTRATE THE RISK IT IS

BAD.

IF WHOLESALE DEPOSITS ARE FEW IT IS GOOD. IF IT IS MORE

TOUGH TIME FOR BANKS.

40Cr- TOTAL DEPOSIT

ONE GUY GOES 25& DROP IN DEPOSIT
FROM 40 BANK GOES DOWN TO 30Cr on wholesale deposits.
DISCOURAGE WHOLESALE DEPOSITS. ENCOURAGE RETAIL
DEPOSITS.

PORTFOLIO
HEALTHY PORTFOLIO VS BAD PORTFOLIO

HEALTHY ASSET PORTFOLIO

TWO SECTORS IN MCLT OF INSOLVENCY AND BANKRUPTCY IN

INDIA-
- STEEL & POWER

NEW NPA TELLS HOW MUCH MORE IS ADDED TO THE

PROBLEM.
DO NOT ACCUMULATE NEW NPA

DISC ON ARC. (RECOVERY)

CAPITAL IN BANK IS IMPORTANT TO COVER-UP THE LOSSES

VERY IMPORTANT NOTE:
THE DEPOSITORS WILL BE AFFECTED IF BANKS DOESN’T HAVE
MONEY TO COVERUP. HENCE, BANKS NEED CAPITAL TO ABSORB
THE RISK.
BANKING IS A BUSINESS OF TRUST.

THEREFORE, BANK IS A BUSINESS OF RISK & LEVERAGE. RISK

COMES FROM LENDING. RISK MEANS LOSSES IF LOSSES OCCUR
CAPITAL COVERS UP LOSSES OTHERWISE BANKS LOSE MONEY &
DEPOSITORS ARE AFFECTED.
A certificate of deposit (CD) is a savings account that holds a fixed amount of
money for a fixed period of time, such as six months, one year, or five years, and in
exchange, the issuing bank pays interest. When you cash in or redeem your CD, you
receive the money you originally invested plus any interest.

Minimum amount is 1cr-2Cr ABOVE NOT 1 LAKH (CHECK RBI)

WHAT IS MCLR?

THE RATE BELOW WHICH U CANT LEND EVEN TO THE BEST OF YOUR
CUSTOMER.