CB SESSION 2 25-AUG 2021

MSc FE
COMMERCIAL BANKING

SESSION 2 : 27 AUGUST 2021

GUEST FACULTY : SHRIDHAR S

OVERVIEW OF COMMERCIAL BANKS

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

SESSION 2 PLAN

• Some More ratios - CRR, SLR, Cash Deposit, Credit Deposit and

Investment Credit Ratios

• Definition(s) of the term Customer

• Types of Banks and their Functions

GUEST FACULTY : SHRIDHAR S PAGE 1 OF 10

CB SESSION 2 25-AUG 2021

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

CASH RESERVE RATIO (CRR)
LEGAL PROVISIONS:
BR Act 1949 :
• Section 35 A – Enables RBI to give directions to Banks
• Section 18 – Non scheduled banks to maintain Cash reserves as per RBI directions
• Section 56 – Extends BR Act provisions to cover Co-operative banks etc.

RBI Act 1934

• Section 42 – Scheduled banks to maintain Cash Reserves as directed by RBI

REGULATORY PROVISIONS:
• Master Direction - Reserve Bank of India [Cash Reserve Ratio (CRR) and Statutory
Liquidity Ratio (SLR)] Directions – 2021 dated July 20, 2021.

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

CASH RESERVE RATIO : KEY REGULATORY PROVISIONS: RBI MASTER DIRECTIONS 2021
• Para 2.a) - Directions apply to all banks
• Para 4. - Every bank shall maintain in India by way of cash reserve, a sum equivalent to
such percent (Currently 4%) of the total of its Net Demand and Time Liabilities (NDTL) in
India….having regard to the needs of securing the monetary stability in the country”.
• Para 6. - Every scheduled bank shall maintain in India with the Reserve Bank, an average
daily balance, the amount of which shall not be less than four per cent of the bank’s total
NDTL in India.
• Para 3 (viii) - Cash to be maintained includes cash in hand, and the net balance in current
accounts with other scheduled commercial banks in India.
• Para 8 - NDTL of a bank includes (a) liabilities towards the banking system net of assets
with the banking system and (b) liabilities towards others in the form of demand and time
deposits or borrowings or other miscellaneous items of liabilities.
• Para 3 a) ii - Apportionment of Saving Bank Account into demand liability and time liability
• Para 11 b) RBI does not pay any interest on the CRR balances maintained by SCBs.
• NOTE: THE ACTUAL CALCULATIONS ARE QUITE COMPLEX, WITH MANY
INCLUSIONS/EXCLUSIONS/EXEMPTIONS AS MENTIONED IN THE MASTER DIRECTION

GUEST FACULTY : SHRIDHAR S PAGE 2 OF 10

CB SESSION 2 25-AUG 2021

COMMERCIAL BANKING : BASIC BUSINESS MODEL DIAGRAM : CRR

PROVIDERS CUSTOMERS CASH RESERVE RATIO
OF GOODS FOR GOODS CRR = CEA / NDTL, (MIN. 4%)
& SERVICES MORE CRR
& SERVICES
= LESS INCOME FOR BANK
INCOMES = MORE LIQUIDITY FOR BANK
EXPENSES G&S
G&S RECEIVED
PAID RECD.
GIVEN

DEPOSITS CASH + BALANCES WITH

CAPITAL CASH
CAPITAL OTHER SCHEDULED BANKS
CAPITAL
PROFITS
LOANS
DEPOSITS : DEPOSITS BANK LOANS =
PERFROMING + NON-
DEMAND AND INTT. RECD. PERFORMING (NPA or NPL)
TIME LIABILITIES INTT. PAID EMPLOYEES

BORROWINGS: FIXED INVESTMENTS INVESTMENTS –

BORROWINGS ASSETS PERFROMING & NON-
DEMAND AND INV. INCOME PERFORMING (NPI)
INTT. PAID
TIME LIABILITIES
BANK’S PROFIT =
(NET INTEREST INCOME + OTHER INCOME) - (EXPENSES + PROVISION FOR NPA & OTHERS)

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

STATUTORY LIQUIDITY RATIO (SLR)
LEGAL PROVISIONS:
BR Act 1949 :
• Section 35 A – Enables RBI to give directions to Banks
• Section 24 - A scheduled bank.. and every other banking company … shall maintain in India,
assets, the value of which shall not be less than such percentage not exceeding forty per cent,
(Currently 18%) of the total of its demand and time liabilities in India … and in such form and
manner … as may be specified by the Reserve Bank…
• Section 56 – Extends BR Act provisions to cover Co-operative banks etc.
REGULATORY PROVISIONS:
• Master Direction - Reserve Bank of India [Cash Reserve Ratio (CRR) and Statutory Liquidity
Ratio (SLR)] Directions – 2021 dated July 20, 2021.

• NOTE: THE ACTUAL CALCULATIONS ARE QUITE COMPLEX, WITH MANY

INCLUSIONS/EXCLUSIONS/EXEMPTIONS AS MENTIONED IN THE MASTER
DIRECTION

GUEST FACULTY : SHRIDHAR S PAGE 3 OF 10

CB SESSION 2 25-AUG 2021

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

STATUTORY LIQUIDITY RATIO : KEY REGULATORY PROVISIONS: RBI MASTER DIRECTIONS 2021
• Para 2.a) - Directions apply to all banks
• Para 13. Statutory Liquidity Ratio (SLR)
• Every bank, in addition to the cash reserves … shall maintain in India, assets, the value of which shall not be less than
such percentage (Currently 18%) not exceeding forty per cent of the total of its (N)DTL in such form and manner as may
be specified…(by RBI)
• Para 17. SLR assets shall be maintained by banks as under:
• (a) Cash, or; (b) Gold…valued at a price not exceeding the current market price, or;
• (c) Unencumbered investment in any of the following instruments [hereinafter referred to as Statutory Liquidity Ratio
securities ("SLR securities")], namely:-
• Dated securities of the Government of India issued from time to time …
• Treasury Bills of the Government of India; or
• State Development Loans (SDLs) of the State Governments …
• Any other instrument as may be notified by the Reserve Bank of India (As and when prescribed).
• (e) any balance maintained by a scheduled bank with the Reserve Bank in excess of the… (CRR)
• NOTE: THE ACTUAL CALCULATIONS ARE QUITE COMPLEX, WITH MANY INCLUSIONS/EXCLUSIONS/EXEMPTIONS AS
MENTIONED IN THE MASTER DIRECTION

COMMERCIAL BANKING : BASIC BUSINESS MODEL DIAGRAM : SLR

PROVIDERS CUSTOMERS STATUTORY LIQUIDITY RATIO (SLR)
OF GOODS FOR GOODS SLR = SEA / NDTL, (MIN. 18%)
& SERVICES MORE SLR
& SERVICES
= LESS CREDIT RISK FOR BANK
INCOMES = MORE LIQUIDITY FOR BANK
EXPENSES G&S
G&S RECEIVED = LESS FUNDS AVAILABLE FOR LOANS
PAID RECD.
GIVEN

DEPOSITS SLR ELIGIBLE ASSETS (SEA),

CAPITAL CASH
CAPITAL Other assets
CAPITAL
PROFITS
LOANS
DEPOSITS : DEPOSITS BANK LOANS =
PERFROMING + NON-
DEMAND AND INTT. RECD. PERFORMING (NPA or NPL)
TIME LIABILITIES INTT. PAID EMPLOYEES

BORROWINGS: FIXED INVESTMENTS INVESTMENTS –

BORROWINGS ASSETS SLR SECURITIES (SEA)
DEMAND AND INV. INCOME NON-SLR SECURITIES
INTT. PAID
TIME LIABILITIES
BANK’S PROFIT =
(NET INTEREST INCOME + OTHER INCOME) - (EXPENSES + PROVISION FOR NPA & OTHERS)

GUEST FACULTY : SHRIDHAR S PAGE 4 OF 10

CB SESSION 2 25-AUG 2021

COMMERCIAL BANKING : BASIC BUSINESS MODEL DIAGRAM : CASH DEPOSIT RATIO

PROVIDERS CUSTOMERS CASH DEPOSIT RATIO
OF GOODS FOR GOODS TOTAL CASH AND BANK BALANCES /
& SERVICES TOTAL DEPOSITS
& SERVICES
HIGHER RATIO = HIGHER LIQUIDITY
INCOMES HIGHER RATIO = LESSER EARNINGS
EXPENSES G&S
G&S RECEIVED
PAID RECD.
GIVEN

DEPOSITS CASH AND BALANCES WITH

CAPITAL CASH
CAPITAL OTHER BANKS / RBI
CAPITAL
PROFITS
LOANS
DEPOSITS : DEPOSITS BANK LOANS =
PERFROMING + NON-
DEMAND AND INTT. RECD. PERFORMING (NPA or NPL)
TIME LIABILITIES INTT. PAID EMPLOYEES

FIXED INVESTMENTS INVESTMENTS –

BORROWINGS BORROWINGS
ASSETS SLR SECURITIES (SEA)
(LENDERS) INTT. PAID INV. INCOME NON-SLR SECURITIES

BANK’S PROFIT =
(NET INTEREST INCOME + OTHER INCOME) - (EXPENSES + PROVISION FOR NPA & OTHERS)

COMMERCIAL BANKING : BASIC BUSINESS MODEL DIAGRAM : CD RATIO

PROVIDERS CUSTOMERS CREDIT DEPOSIT RATIO (CD RATIO)
OF GOODS FOR GOODS TOTAL CREDIT (LOANS + LOAN
& SERVICES SUBSTITUTE INV.) / TOTAL DEPOSITS
& SERVICES
HIGHER CD RATIO = MORE EFFICIENCY
INCOMES REGIONAL CD RATIOS : SENSITIVE MATTER
EXPENSES G&S
G&S RECEIVED
PAID RECD.
GIVEN

DEPOSITS CASH AND BALANCES WITH

CAPITAL CASH
CAPITAL OTHER BANKS / RBI
CAPITAL
PROFITS
LOANS
DEPOSITS : DEPOSITS BANK LOANS =
PERFROMING + NON-
DEMAND AND INTT. RECD. PERFORMING (NPA or NPL)
TIME LIABILITIES INTT. PAID EMPLOYEES

FIXED INVESTMENTS INVESTMENTS –

BORROWINGS BORROWINGS
ASSETS LOAN SUBSTITUTE INV.,
(LENDERS) INTT. PAID INV. INCOME
STATE GOVT. SECURITIES,
OTHER SECURITIES
BANK’S PROFIT =
(NET INTEREST INCOME + OTHER INCOME) - (EXPENSES + PROVISION FOR NPA & OTHERS)

GUEST FACULTY : SHRIDHAR S PAGE 5 OF 10

CB SESSION 2 25-AUG 2021

COMMERCIAL BANKING : BASIC BUSINESS MODEL DIAGRAM : CIR

PROVIDERS CUSTOMERS CREDIT INVESTMENT RATIO (CIR)
OF GOODS FOR GOODS TOTAL CREDIT (LOANS + LOAN
& SERVICES SUBSTITUTE INV.) / TOTAL INVESTMENTS
& SERVICES
HIGHER CIR RATIO = MORE PRODUCTIVITY
INCOMES LOWER CIR RATIO = “LAZY BANKER”
EXPENSES G&S
G&S RECEIVED
PAID RECD.
GIVEN

DEPOSITS CASH AND BALANCES WITH

CAPITAL CASH
CAPITAL OTHER BANKS / RBI
CAPITAL
PROFITS
LOANS
DEPOSITS : DEPOSITS BANK LOANS =
PERFROMING + NON-
DEMAND AND INTT. RECD. PERFORMING (NPA or NPL)
TIME LIABILITIES INTT. PAID EMPLOYEES

FIXED INVESTMENTS INVESTMENTS –

BORROWINGS BORROWINGS
ASSETS LOAN SUBSTITUTE INV.,
(LENDERS) INTT. PAID INV. INCOME
STATE GOVT. SECURITIES,
OTHER SECURITIES
BANK’S PROFIT =
(NET INTEREST INCOME + OTHER INCOME) - (EXPENSES + PROVISION FOR NPA & OTHERS)

COMMERCIAL BANKING : BASIC BUSINESS MODEL DIAGRAM : ID RATIO

PROVIDERS CUSTOMERS INVESTMENT DEPOSIT RATIO (ID RATIO)
OF GOODS FOR GOODS TOTAL INVESTMENTS / TOTAL DEPOSITS
& SERVICES HIGHER ID RATIO = LESS CREDIT
& SERVICES
HIGHER ID RATIO = “LAZY BANKER”
G&S INCOMES
EXPENSES G&S RECEIVED
PAID RECD.
GIVEN

DEPOSITS CASH AND BALANCES WITH

CAPITAL CASH
CAPITAL OTHER BANKS / RBI
CAPITAL
PROFITS
LOANS
DEPOSITS : DEPOSITS BANK LOANS =
PERFROMING + NON-
DEMAND AND INTT. RECD. PERFORMING (NPA or NPL)
TIME LIABILITIES INTT. PAID EMPLOYEES

FIXED INVESTMENTS INVESTMENTS –

BORROWINGS BORROWINGS
ASSETS LOAN SUBSTITUTE INV.,
(LENDERS) INTT. PAID INV. INCOME
STATE GOVT. SECURITIES,
OTHER SECURITIES
BANK’S PROFIT =
(NET INTEREST INCOME + OTHER INCOME) - (EXPENSES + PROVISION FOR NPA & OTHERS)

GUEST FACULTY : SHRIDHAR S PAGE 6 OF 10

CB SESSION 2 25-AUG 2021

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

• SOME STATISTICS : ALL SCHEDULED COMMERCIAL BANKS (ASCB)
NO. RATIO WEEK ENDED WEEK ENDED 14 WEEK ENDED
16 AUG 2019 AUG 2020 30 JUL 2021

1 CRR 4% 3% 4%
2 SLR 19% 18% 18%
3 CASH : DEPOSIT RATIO 5% 4% 5%
4 CREDIT : DEPOSIT RATIO 76% 73% 70%
5 INVESTMENT :DEPOSIT RATIO 28% 31% 30%
6 CREDIT : INVESTMENT RATIO 271% 235% 233%
(Calculated from item 4 and item 5)
• Source : RBI WEEKLY STATISTICAL ABSTRACT (www.rbi.org.in)

Business model of select CB in India : MORE RATIOS (31-03-2020)

SARASWAT
STD.
SBI BOB ICICI CO-OP
No. Sources of Funds CHART.
BANK

A CASH : DEPOSIT RATIO 9% 9% 14% 17% 12%

B CREDIT : DEPOSIT RATIO 72% 73% 84% 76% 67%

C INVESTMENT : DEPOSIT RATIO 32% 29% 33% 48% 35%

D CREDIT : INVESTMENT RATIO 225% 251% 255% 158% 191%

NOTE : ALL ABOVE RATIOS ARE CALCULATED FROM GROSS FIGURES IN RESPECTIVE
ANNUAL REPORTS, MAY DIFFER FROM FIGURES REPORTED ELSEWHERE

GUEST FACULTY : SHRIDHAR S PAGE 7 OF 10

CB SESSION 2 25-AUG 2021

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

• RATIOS IN THE NEWS
BUSINESS STANDARD: 11 MAY 2021
“Lazy banking: Banks' bond investment surpasses loans
Record liquidity infusion by the central bank in the banking system during the financial year
2020-21 amid sluggish economic activity resulted in banks investing more in safe
government papers than in extending loans, data from Reserve Bank of India (RBI) showed.
This trend has not been seen in nearly two decades, barring 2016 — the year of
demonetisation”.

Rediff News May 06, 2020 – Tamal Bandopadhyay

“RBI wants to end lazy banking
• Why has the RBI cut the (Reverse Repo) rate? This has been done to stop lazy banking.
• Banks are being encouraged to lend instead of parking their resources with the RBI and
earn risk-free interest income”.

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

RATIOS IN THE NEWS … Contd…
• Hindustan Times : 26 August 2021
Uttar Pradesh says credit deposit ratio up: Imbalance among districts, regions
persists
A State Level Banker’s Committee (SLBC) review indicates that UP’s credit deposit
ratio went up from 46% in March 2017 to about 52% in June 2021
A district-wise breakup indicates that nine of the nearly 30 districts of eastern UP
have a CD ratio of less than 40%. Four of them have a CD ratio of less than 30%.
(ASCB CD RATIO 30 JULY 2021 = 70%)
• The Arunachal Times CHANGLANG, 28 Jul 2021
Changlang Deputy Commissioner Dr Devansh Yadav expressed concern over the
low CD (Credit-deposit) ratio in the district and advised the banks to make
strategies to achieve the targets …

GUEST FACULTY : SHRIDHAR S PAGE 8 OF 10

CB SESSION 2 25-AUG 2021

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

RATIOS IN THE NEWS … Contd…

MENAFN - Gulf Times (26 – 08 – 2021)

Qatar banks display lowest NPLs, highest ROE in Q2: Kamco Invest
The … bad loans … on the GCC banks' loan books remained … at 4.2%. The NPL
for the UAE banks continued to remain the highest in the GCC at 6.1% at the
end of Q2-2021 … In the case of Bahrain banks, it was 4.7%, Oman (4.1%) and
Kuwait (2.7%).
The aggregate ROE for the GCC banking sector …. a four-quarter high level of
9.1% … Qatari banks continued to have the highest average ROE of 12% at the
end of Q2-2021 …. Saudi Arabian banks were next with an average ROE of 11%,
the UAE (7.3%), Oman (6.4%) and Kuwait (6.1%).
The aggregate loan-to-deposit ratio for the GCC banking sector … remained
above the 80% mark at the end of Q2-2021 to reach 80.4% ….

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

RATIOS IN THE NEWS … Contd…
MENAFN - Gulf Times (26 – 08 – 2021)

• The … bad loans … on the GCC banks' loan books remained … at 4.2%. …
• The aggregate ROE for the GCC banking sector …. a four-quarter high level of 9.1% …
• The aggregate loan-to-deposit ratio for the GCC banking sector … remained above the 80%
mark at the end of Q2-2021 to reach 80.4% ….

SARASWAT
No. Item SBI BOB ICICI STD. CHART.
CO-OP
A Gross NPA 6% 9% 6% 6% 5%
B RoE (*Est.) 8% 1% 7% 10%* 6%*
C CD Ratio 72% 73% 84% 76% 67%

GUEST FACULTY : SHRIDHAR S PAGE 9 OF 10

CB SESSION 2 25-AUG 2021

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

DEFINITION OF THE TERM CUSTOMER
• The term “Customer” is not defined either in BR Act or RBI Act.
• Operating definition – A Bank’s Customers may be defined as individuals or
businesses who purchase goods and services from the bank ...
• Therefore we can identify several types of customers of banks, depending on
what specific goods or services or combinations of goods and services, they are
availing from the bank.
• The legal relationship between banker and customer varies as per the product
or service availed…a customer can have many types of relationships with the
bank at the same time.

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

Product / Service Purchased Legal Status of Bank Legal Status of Customer
Bank Deposit / Borrowing by Bank Debtor Creditor
Bank Loan / Investment by Bank (in debt security) Creditor Debtor
Gold Loan or other Loan against pledge of securities Pledgee (Pawnee) Pledger (Pawnor)
Mortgage Loan Mortgagee Mortgagor
Hypothecation Loan Hypothecatee Hypothecator
Issue of Pay Order / Draft / NEFT / IMPS Debtor Creditor
Issue of a Bank Guarantee on behalf of Customer Guarantor Obligant
Collection of Cheque Agent Principal
Sale/purchase of security on behalf of customer Agent Principal
Trustee appointed in a Will on behalf of a beneficiary of Will Trustee Beneficiary
Sale of Foreign Currency / Security Seller Buyer
Purchase of Foreign Currency / Security Buyer Seller
Locker facility Lessor Lessee
Safe Custody facility Bailee Bailor

GUEST FACULTY : SHRIDHAR S PAGE 10 OF 10

CB SESSION 2 25-AUG 2021

MSc FE: COMMERCIAL BANKING – OVERVIEW OF COMMERCIAL BANKS

Types of Banks
• As per Authorisation - Scheduled banks and Non - Scheduled banks
• As per Activity - Commercial banks and Specialised banks (SIDBI, NABARD, EXIM Bank etc.)
• As per Ownership - Nationalized Bank, Public Sector banks, Private Sector banks (Old and New
generation banks), Foreign Banks
• As per Incorporation – Under Special Statute, Under Companies Act, Under Bank Nationalisation
Act, Under RRB Act, Co-operative banks / socys under State/Central Co-operative Societies Acts
• As per range of services offered – Universal banks and Narrow Banks - Local Area Banks (Pvt.
Sector), Small Finance Banks (Private Sector), Payment banks
Other types of institutions that may be confused with Banks
• NBFCs
• Merchant banks
• Chit Funds and Nidhi Companies

COMMERCIAL BANKING SESSION 2 : Q AND A & CONTACT

ANY QUESTIONS ?

PLEASE CONTACT ME

E-mail: shridhar58@gmail.com

WhatsApp: 9818547778

GUEST FACULTY : SHRIDHAR S PAGE 11 OF 10