1-NMIMS Banking 1 of 5

Ref : RBI & Various Articles
/published papers/Text Books and

speakers personal experience.
Banking & Insurance
The Presentation has to be read/understood in context

with the explanation in class and the Book references
given for the syllabus.
PS : No part of the presentation may be used without the express consent of

the author mentioned below.
Parag Shah for NMIMS- ASMOC

Banking Part 1

Context setting
Background/Factors
impacting Indian Economy
Indian
Economy
Population
Poverty
(& the Dichtomy)
Literacy
Corruption
…not to forget the pangs of Indian politics

A country with 1.3+ billion
people and Infrastructure
bursting at the seams
Two Indias
India’s poverty
Two Indias
India’s poverty
Relatively low levels of Literacy- Grown by not yet all encompassing
Fighting Corruption *…
*Anna Hazare @ 2011
The pangs of politics !
Leading indicators of growth and
success... well atleast some of them !
◼ Human Development Index- measure of average achievement in key
dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living
◼ Gross Domestic Product (GDP) Growth

 Contribution of Agriculture, Industry and Services,
Per capita
◼ Fiscal Deficit
◼ Trends in Inflation Rate & Interest Rates
◼ Credit Off-take
◼ Sensex
◼ Balance of Payments- Exports and Imports,
Foreign Investments, Foreign Direct Investment
(FDI) Trends
◼ Foreign Exchange Reserves/Exchange Rates
What crisis is world facing
today ?
◼ The editors of the Collins English dictionary have declared “permacrisis” to be their
word of the year for 2022 ( an extended period of instability and insecurity largely from
catastrophic events)

2023 ???
◼ And what about 2023 ?
4 KEY themes and trends for 2023

Geo-Politics…
◼ The war in Ukraine means that Russian influence in the Middle east will
wane. (OTHER potential situations…)
 Russia is the second biggest arms dealer behind USA, however the malfunctioning of
its weapons in Ukraine will deter Arab buyers in the future or terms will change.
◼ South Asia is paying the price for the Ukraine war. Sri Lanka, Pakistan
and Bangladesh are all challenged as the cost of food and energy has
gone up. India is the bright spot in south Asia.
Household debt as a % GDP

South Korea 105 %
HK91%
Thailand 90 %/Taiwan88%
Britain 88 %
USA80%
Japan 70 % Singapore 58 %
◼ India 35%
Recession…
◼ The world economy is slowing and many countries risk falling into
recession in 2023.
◼ Tight money has brought about a strong dollar which is exporting
inflation to emerging markets and making their hard currency debt
harder to service.
◼ The year will be about battling inflation and economic stagnation.
39 % of CFOs interviewed by Deloitte expect America to be in stagflation and 46 % expect a
recession.
In 2022, McDonalds raised the price of its cheeseburger in UK for the first time in 14 years.

Climate change
◼ Global warming is a threat multiplier, aggravating
poverty and conflict.
◼ With global averages up between 1.1 to 1.3 degrees
vs pre - industrial levels, many floods, droughts,
wildfires and heatwaves will be made worse .

Unemployment and Technology
substituting….
◼ People worry about robots taking their jobs,
however ,
◼ None of the countries that have adopted robots
on a large scale – Germany, Japan, South Korea
and Singapore have a problem with
unemployment.

EXPECTATION SETTING ?

Overview of Syllabus
◼ Brief Syllabus and Recommended reading and approx. time
mentioned against each broad topic.
◼ The chronology of topics being taught may vary to keep the

presentation in a flow.
◼ The no of hours may vary depending on the depth of

discussions/Class participation and Practical cases that may be
discussed in class.
◼ Importance is placed for application of the concept in corporate

life; rather than the just the text book - verbatim concept.

Syllabus 1 of 3
Classes Particulars Book References No of Hours

Banking History & Introduction -History of Indian Banking -Principles of
Banking -Basic Concepts & Need for Banking -Functions of Banks -
Performance measures (NIM, NIS, NII)
VijayaraghavanIyengar.
Outcome: Students should be able to understand the basics of banking Introduction to Banking.
industry and comprehend the performance measures. They should be able Excel Books. Chapter 1 and
1-7 to analyse a bank’s performance. 2..https://www.rbi.org.in/ 7
Banks & capital markets: -Banks role in capital markets (Depository, DP ,
Repository, ASBA)
Outcome: Students should be able to understand the bank’s role in capital Capital Markets in India:
8-14 markets and functions of a depository Rajesh Chakraborti 7
Banking Structure – Types of Banks
Scheduled and Non Scheduled
- Small Finance Banks
Payments Banks -RBI & its Functions - Types of accounts, Instruments,
Cards, Foreign currency accounts -Fee based products -Loans -Tools of
Monetary Control (CRR, SLR, OMO , SCC, LAF, MSF) VijayaraghavanIyengar.
Outcome: Students to understand multiple offerings of a banking Introduction to Banking.
15-23 corporation and the classification of banks. Excel Books 9
Negotiable Instruments Act: -Basics of negotiable instruments act
Promissory Notes Bill of Exchange Cheque -Rules related to cheques,
Clearing cycle Outcome: Students should Banking (Theory & Practice)
be able to comprehend the role of negotiable instrument in Banking and : KC Shekhar & Lakshmi
24-29 the respective rules. Shekhar. Vikas Publication 6
Compliance & E Banking: -Section 138 -KYC & AML -Priority Sector Introduction to Banking
Advances -Electronic banking Management of Banking
and Financial Services-
- Phishing, Wishing, Smishing Parag Shah for NMIMS- ASMOC Pearson- Padmalatha
Outcome: Students to understand the shift of banking towards electronic Suresh and Justin paul
30-32 interfaces . 3
Syllabus 2 of 3
Basics of Insurance: -History of Insurance - Basic concepts of

Insurance -Taxation -Meaning of Risk -Principles of Insurance - Life
&General Insurance (Motor and Health) Principles of Insurance:
Outcome: Students to understand the genesis and basic building Insurance Institute of
33-39 blocks of insurance India 7
Insurance Types(Endowment, Term plan, Moneyback, Child plan, ULIP)

Bancassurance
Outcome: Students to learn and analyse multiple offerings in insurance Life Insurance: Insurance
40-47 products (Life) Institute of India 8
Underwriting (Financial / Medical) Claims
Outcome: Students should understand the basics of underwriting and India Insurance Guide: LP
48-49 claims. Gupta 3
Reinsurance (Treaty & Facultative) Retrocession MWPA (Married

Woman Prop Act) India Insurance Guide: LP
50-52 Outcome: Students should understand basics of reinsurance Gupta 3
Insurance Repository
Functions
Concept of Electronic Insurance account https://www.policyholder.g
Outcome: Students to understand the shift towards electronic form of ov.in
53-55 insurance. 2
Syllabus 3 of 3

NPAs
Types
Recovery
Identification
Solution
Cases
Outcome: Students to understand the concept of NPAs – its effects Introduction to Banking. Excel
56-60 and recovery techniques. Books 5

TEXT BOOKS AND REFERENCES
Prescribed Text Books:

Essentials of Banking & Insurance. Dr Sunil Kumar. JSR Publishing. 2020
References: chapter references see official course module – word/pdf file

Banking & Insurance. DD Chaturvedi, Arun Mittal, Saumya Chaturvedi.
Scholar Tech Press 2021
Vijayaraghavan Iyengar. Introduction to Banking. Excel Books. Reprint 2016
Management of Banking and Financial Services- Pearson- Padmalatha Suresh
and Justin paul 2017
Web Based References:

http://www.allbankingsolutions.com/
https://www.rbi.org.in/
https://www.policyholder.gov.in
Context setting :
Indian Financial System
An institutional framework of a country to

enable financial transactions…

Key aspects of a Financial
system
FINANCIAL ASSETS FINANCIAL INSTITUTIONS FINANCIAL MARKETS

Loans, deposits, bonds, Banks, mutual funds, Money market, capital market,
equities etc insurance companies etc forex market etc
REGULATORS

Indian Financial System
Financial Markets Financial Intermediaries Financial Services
Credit Markets Insurance
Public
NBFCs & Fis* Banks CIC/HFCs
types etc..
Private
Scheduled**/Commercial Banks
MB, IB, VC*, PE etc

Public Private Foreign Payments Co-op
/SFB /RRBs
Forex Capital Mkt Commodities Money Mkts

(Equity, Debt, MFs) (T.Bills, Call Money,
CPs, CDs)
Primary (IPOs, NFOs, Pvt. Placement)

**Banks listed under second PS : Mutual Funds/Forex
schedule to RBI act 1949- Detailed expl in class not
obbligato/ Privileges given& Secondary (Mutual Funds, Stock Exchanges)
incl Coop /Comm banks/Has
in ppt.
capital cut offs Parag Shah for NMIMS- ASMOC
Money Market Basics…
◼ ‘Money Market’ is used to define a market where short-term financial
assets with upto one year tenor paper are traded.
◼ The assets are a close substitute for money and can be traded in the
primary and secondary market.
◼ High liquidity and short maturity are typical features which are traded
in the money market.
◼ The non-banking finance corporations (NBFCs), commercial banks,

and corporate houses typically make up the money market.

Features of Money Market…
1. High Liquidity
◼ Owing to this characteristic money market instruments are considered as close
substitutes of money.
2. Secure Investment
◼ Since issuers of money market instruments TYPICALLY have a high credit
rating.
3. Fixed returns
◼ The instruments are typically / more often than not, offered at a discount to the
face value, the amount that the investor gets on maturity is decided in
advance.

Types of Money Market Instruments…
1. Treasury Bills (T-Bills)
◼ T Bills are issued by RBI on behalf of the Central Government for raising
money.
◼ They have short term maturities with highest upto one year.
◼ Currently, T- Bills are issued with 3 different maturity periods, which are, 91
days T-Bills, 182 days T- Bills, 1 year T – Bills.
◼ T-Bills are issued at a discount to the face value and at At maturity, the investor
gets the face value. Very safe instrument as backed by Govt.
◼
2. Commercial Papers
◼ Large companies and businesses issue UNSECURED promissory notes to
raise capital to meet short term business needs, known as Commercial
Papers (CPs). These firms have a high credit rating, But not entirely risk free.
Discuss why not risk free in class.
◼ Corporates, primary dealers (PDs) and All-India Financial Institutions (FIs) can
issue CPs.
◼ CPs have a fixed maturity period ranging from 7 days to 270 days. However,
investors can trade this instrument in the secondary market. They offer
relatively higher returns compared to that from treasury bills.
Types of Money Market Instruments…
3. Certificates of Deposits (CD)
CDs are financial assets that are issued by banks and financial institutions. They offer
fixed interest rate on the invested amount. The primary difference between a CD and
a Fixed Deposit is that of the value of principal amount that can be invested. The
former is issued for large sums of money ( 1 lakh or in multiples of 1 lakh thereafter).
The maturity period of Certificates of Deposits ranges from 7 days to 1 year, if issued
by banks.4.
4. Inter-Corporate Deposit (ICD) is an unsecured borrowing by corporates and

FIs from other corporates
◼ Corporate having surplus funds would lend to another corporate in need.
◼ uncollateralized basis and hence a higher rate of interest
◼ The short term credit rating of the borrower would determine the rate
◼ Credit spreads demanded even for the top rated corporates would be higher than
similar rated banks and the rates on ICDs would higher than those in the CDs
market.
◼ Tenor -1 day to 1 year, but the most common tenor of borrowing is for 90 days
◼
Capital Market Basics…
Definition:
 Capital market is a market where buyers and sellers engage in trade of
financial securities like bonds, stocks, etc.
 The buying/selling is undertaken by participants such as individuals and
institutions.
◼ What do they do :
 Capital markets help channelise surplus funds from savers to institutions
which then invest them into productive use.
 This market trades mostly in long-term securities.
Who do they comprise :
 Capital market consists of primary market and secondary market.
◼ Primary market deals with trade of new issues of stocks and other
securities
◼ Secondary market deals with the exchange of existing or previously-
issued securities.
Anything more ?
◼ Another important division in the capital market is made on the basis of the
nature of security traded, i.e. stock market and bond market.

Eg of Participants in Primary Capital market
Corporates
/ IB firms
use CA
firms
Investment/Merchant
Banks
DP, Depository, Registrar (RTA) and ASBA
In the primary market, institutions invest capital in corporations that seek to grow and
operate, while corporations issue debt or equity in return. Investment banks act as advisors
for institutions and corporations on M&A and IPO. Public accounting firms (CA firms) provide
accounting and advisory services to the key players.
Eg of Participants in Secondary Capital
market
Retail Retail
and Inst. and Inst.
Investors Investors
Investment/Merchant Banks
DP and Depository/RTA
The secondary market involves the sale and trading of issued bonds and shares in a centralized
marketplace say BSE/NSE/OTC system or platforms provided for electronic trading. Investment
/Merchant banks offer their sales, trading, and research services to help buyers and sellers make
decisions on their securities.
All about Bond Market
Bonds :
• A bond is a debt instrument that provides a periodic stream of interest

payments to investors while repaying the principal sum on the specified
maturity date.
• A bond’s terms and conditions are contained in a legal contract between the
buyer and the seller, known as the indenture.
Key Bond Characteristics

Each bond can be characterized by several factors. These include:
▪ Face Value
▪ Coupon Rate
▪ Coupon
▪ Maturity
▪ Call Provisions
▪ Put Provisions Parag Shah for NMIMS- ASMOC
All about Bond Market
Pricing Bonds
A bond’s price equals the present value of its expected future cash flows.
The rate of interest used to discount the bond’s cash flows is known as the yield to maturity (YTM.)
a) Pricing Coupon Bonds

A coupon-bearing bond may be priced with the following formula:
where:
C = the periodic coupon payment
y = the yield to maturity (YTM)
F = the bond’s par or face value
t = time
T = the number of periods until the bond’s maturity date
Pricing the Bonds…..
This formula shows that the price of a bond is the present value of its promised cash
flows.
As an example, suppose that a bond has a face value of $1,000, a coupon rate of 4% and
a maturity of four years.
The bond makes annual coupon payments. If the YTM is 4%, the bond’s price is
determined as follows::

Bond prices vis a vis YTM….
These results in the previous slide, show the following important
relationship: YTM (y) , Coupon and FV.
▪ if y > coupon rate, P < face value

▪ if y = coupon rate, P = face value
▪ if y < coupon rate, P > face value
These results also demonstrate that there is an inverse-relationship

between yields and bond prices:
▪ when yields rise, bond prices fall
▪ when yields fall, bond prices rise

All about Stocks/Equity….
•-- The stock market is a marketplace where the common stocks of listed
companies are traded.
• In simple terms, the stock market is a platform where stock or shares are bought
and sold.
• Trading means buying and selling, and so, when we talk about stock trading, it
essentially means buying and selling of stock.
Stock exchanges in India,

• BSE (Bombay Stock Exchange) Operates Sensex and the
• NSE (National Stock Exchange)- Nifty is operated by an NSE subsidiary.
The tools of the trade :

To buy and sell in the share bazaar, you need some basic tools.
• An active bank account from where the financial transactions would take place
• A Demat account for holding your stocks in a dematerialized format
• A trading account for trading in stocks.
• A stockbroker through whom you trade in stocks.
.
Options in Trading…
-- not only means trading in stocks.
Trading
Different options of trading available that you can explore.
• Intraday trading
Intraday trading means trading in stocks in a single day. Through intraday trading, you
buy and sell stocks on the same day to earn profits.
• Commodity trading
Besides trading in stocks, you can also trade in commodities that are listed in the
commodity markets. Commodities are moveable goods and assets that can be
bought and sold. In India, the commodity market has four types of commodities:
• Energy like natural gas, crude oil, etc.
• Metals like gold, silver, copper, and platinum
• Food like rice, wheat, pulses, etc.
• Livestock and meat like eggs, cattle, pork, etc.
You can trade in commodities through a commodity trading account opened in your
name. The commodity exchanges of India include MCX, NCDEX etc…

All about Trading….
• Futures and Options trading
• Futures and Options are stock derivatives.
• Under a Futures and Options contract, you agree to buy or sell a stock
at a pre-defined price on a pre-defined date. For example, if you agree
to sell Stock A after 15 days at Rs.15/unit, it would be a type of futures
and options contracts.
• Commodity trading can also be done through a futures contract.
• Forex trading
• Forex trading is trading in a decentralized currency market in different
world currencies.
• Under forex trading, you buy and sell currencies of different
economies.
• You need a forex trading account, and the trading is settled on a cash
basis daily.
Concepts about trading (Stock
Market)….
• Stock Exchanges and SEBI
• Depositories
• Sensex and Nifty - stock indices examples
• Online vs Offline trading
• Fundamental analysis ( investors) /Technical ( traders)
• Intraday vs Delivery

Market)….
• Bid Price
A bid price is nothing but the amount that you (dealer) desire to pay for a
particular share. I will buy at 50 but sell at 52... 50/52.
• Ask Price
Ask price is a specific price at which you are looking to sell a share.
Short sell :
• An investor sells short when he anticipates that the price of a stock may fall
from the existing price. So, the investor “borrows” a share and sells it.
• Once the share price dips, he will buy the same share at a lower price, and
return it back, while pocketing a profit in the bargain.
• Simply put, you first sell at a high and then buy at a low. Short-selling is
usually conducted in anticipation of a downward stock movement and is a
risky proposition.

Market)….
Upper and lower circuits
• Some stocks are more volatile than others.
• To curb this volatility, SEBI has come up with the concept of circuit filters.
• Its maximum limit the price of a stock can move on a given day. Price trading band.
• If a stock breaches this limit, trading is halted in that stock for a while.
• There are three levels of limits.
• Each limit leads to trading halt for a progressively longer duration.
• If all 3 circuit filters (say 5%/10% etc) are breached, then trading is halted for the
day.
• Also, prices may not be same on the two exchanges – NSE and BSE.
• So, circuit filters can be different for shares on the two exchanges.
Insider trading
• The trading of shares based on knowledge not available to the rest of the world’.
• It is illegal to trade after receiving 'tips' of confidential securities information.
This applies to corporate personnel as well as traders and brokers.
• Company management have to report their trades to the exchange.
• Eg : Corporate officers, directors, or employees trade the company’s stocks after
significant, confidential corporate developments, it is an illegal form of insider trading
Market)….
International Securities Identification Number (ISIN)
• An ISIN is a 12-digit alphanumeric code that uniquely identifies a specific security.
• The numbers allocated by country's respective national numbering agency (NNA).
• An ISIN is not the same as the ticker symbol, which identifies the stock at the
exchange level.
• The ISIN is a unique number assigned to a security that is universally
recognizable.
• ISINs are used for numerous reasons including clearing and settlement. The
numbers ensure a consistent format so that holdings of institutional investors can
be tracked consistently across.
PE Ratio :
• The price/earnings (P/E) ratio, also known as an “earnings multiple,”
• Definition of a P/E ratio is stock price divided by earnings per share (EPS)
EPS :
• EPS is the bottom-line measure of a company’s profitability
• Defined as net income divided by the number of outstanding shares. Basic and
Diluted - Explain in class Parag Shah for NMIMS- ASMOC
Broad Differences- Stocks/Bonds
Source : The Balance Parag Shah for NMIMS- ASMOC

Class Participation Time
◼ Learnings from the previous Slide

 Corporate- Real life Examples

Banking Part 2
➢ History Of Banking
➢ RBI and its functioning
➢ Types of Banks
➢ Principles of Banking
➢ Basic Concepts of Banking
➢ Role of Banks
➢ Functioning of Banks
➢ Fund Based and Non fund based products
➢ Appraisal and lending- How its done
➢ Working Capital- Overview

History of Banking
Origin of word “Bank”
⚫ The word “Bank” is derived from the Italian word
“banc” or “banque” i.e a bench or a counter .
⚫ Other opinion- “Bank” is originally derived from the

German word “back” meaning joint-stock fund which
was Italianised into “banco”

Early History of Banking
⚫ Banking originated even before 2000 BC in Babylonia

through activities of Temples & Palaces .
⚫ The first banks of the world were probably religious
Temples. The Great Greek temples of EPHESUS &
DELPHI were known to be the most powerful Banking
Institutions.
⚫ The growth of trade between countries also led to
currency exchange becoming an important activity

Early History of Banking…Contd
⚫ Exchange bankers operated in & around temples

where they set up temporary tables or counters.
⚫ Greek bankers developed skills in financing carriage

of goods through ship & also construction.
⚫ The business of banking was practically destroyed

after the fall of Roman Empire . Decline in trade led to
decline in need to transfer money.
⚫ In 12th century Christians were prohibited from

charging interest. As a result,Jews & another sect
called Templers emerged as bankers
⚫ In the 13th century Lombardis of Italy replaced Jews
& Florence became most prominent banking centre.
⚫ The first European Bank - The Bank of Spain was
established in 1401whose records still exist

⚫ The Italians developed concept of double entry book

keeping. The first book on this was published in 1694.
⚫ During the crusades between 1642 & 1651 valuables
were deposited with goldsmiths for safe keeping.
⚫ Through centuries banks have also been biggest
financiers of Kings & Governments.

Early History of Banking…in India
⚫ The first Banking institution was the Presidency Bank
- Bank of Bengal. It was started in the year 1809.
⚫ Several Indian businesses founded their own Banks

during the Swadeshi movement between 1906-1913.
⚫ Soon after Independence, Development Financial

Institutions like Industrial Development Bank of India
(IDBI) & Industrial Credit & Investment Corporation of
India (ICICI) were promoted by Govt of India to
provide long term financial assistance to Industries.
HR College of Commerce and Economics

Overview- History of Banking
◼ Until the early 1990s, the Indian financial system was
strictly controlled.
 Interest rates were administered, formal and informal
parameters governed the asset allocation,
 strict controls limited entry into and expansion within the
financial sector.
 The government of India's economic reform program,
began in 1991
◼ The first phase of the reform process began with the
implementation of the recommendations
 Committee on the Financial System, the Narasimham
Committee I. (Refer to summary slide of Narasimham
Committee)

Development Oriented
Banking
◼ Historically, close association between banks and
some traditional industries- cotton textiles in the
west, jute textiles in the east
◼ Banking has not been mere acceptance of deposits
and lending money; included development banking
◼ Lead Bank Scheme- opening bank offices in all
important localities
◼ Providing credit for development of the district
◼ Mobilising savings in the district. ‘Service area
approach’
◼ Financial Inclusion

Unorganised Market
/Indigenous Banking
◼ Individual bankers like Shroffs, Seths, Sahukars,
Mahajans, etc. combine trading and other business
with money lending.
◼ Vary in size from petty lenders to substantial shroffs
◼ Act as money changers and finance internal trade
through hundis (internal bills of exchange)
◼ Indigenous banking (IB) is usually family owned
business employing own working capital
◼ At one point it was estimated that IBs met about
90% of the financial requirements of rural India

Establishment of RBI
⚫ In 1926, Royal Commission on Indian Currency &

Finance recommended start of a Central Bank in
India so as to perfect her credit and currency
organisation.
⚫ The Reserve Bank Of India, was functional w.e.f April

1,1935 under Reserve Bank of India Act, 1934
⚫ RBI was nationalised in the year 1949.

Reserve Bank of India
⚫ It is the Central Bank of India
established on 1st April 1935
⚫ Headquartered in Mumbai, present
Governer is Raghuram Rajan
⚫ The bank was constituted for the need
to
⚫ Regulate issue of bank notes
⚫ Maintain reserves with a view to
securing monetary stability
⚫ Operate credit and currency system
of the country
⚫ RBI also needs to move with times :
⚫ New units developed- Retail /Digital
Banking Unit
⚫ Digital Currency Norms being established
(WIP)
⚫ College of Supervision
Key functions of RBI
⚫ Formulates monetary policy
Next Slide
⚫ Supervision of financial institutions
⚫ Regulator and Supervisor of
payment and settlement systems
⚫ Banker and debt manager to
government
⚫ Issuer of currency
⚫ Manages flow of notes & coins
⚫ Banker to banks
⚫ Manager of foreign exchange
One of the most important function of RBI: Formulation and

execution of monetary policy (Credit Control)
RBI : As supervisory and controlling
authority over banks
⚫ Commercial banks maintain accounts with RBI.

⚫ RBI controls the activities of Commercial Banks by
virtue of the powers vested in it under Banking
Regulations Act, 1949 and RBI Act, 1934.
⚫ Commercial Banks need to obtain license from RBI to
open new Branches.
⚫ RBI can inspect the Books and Accounts of any
Commercial Bank and defects, if any, need to be
rectified by the concerned Banks.
⚫ RBI has the power to appoint additional directors on
the Board of Directors of Commercial Banks.

Need for credit control
⚫ To encourage the overall growth
of the priority sector
⚫ To keep a check over the
channelization of credit so that
credit is not delivered for
undesirable purposes.
⚫ To achieve the objective of
controlling Inflation and Deflation
⚫ To boost the economy by
facilitating the flow of adequate
volume of bank credit to different
sectors.
Indian Banking system (1 of 2)
⚫ In 1969- 14 major commercial banks were nationalised and 6
more were nationalised in 1980
⚫ Till 1990 banking business in India was a near monopoly of
the government
⚫ The Imperial Bank of India was the first which was then renamed into
State Bank of India
⚫ 136 commercial banks (Most of them scheduled Banks)
⚫ 27 PSU Banks and 22 Indian Pvt sector Banks and approx. 44-46 Foreign
Banks /43 Scheduled RRBs , 11 SFBs & 4 Payment Banks
⚫ Major banking consolidation in the PSUs last 2-4 years and PSU Bks
are now 12 as on Jan 2022 (Thus recently approx. :
12+22+44+43+11+4= 136 Scheduled Commercial banks (3 N.Schd)
◼ The objective of the Cooperative Banks Act (Not commercial Banks) was to
establish co-operative credit societies “to encourage thrift, self-help and
cooperation among agriculturists, artisans and persons of limited means.”
 Cooperative bank is an institution established on the cooperative basis and dealing in ordinary
banking business.
 Like other banks, the cooperative banks are founded by collecting funds through shares, accept
deposits and grant loans
Source: News papers reports/ RBI publications

Indian Banking system (2/2)
⚫ Over 1.2 lac branches (>40% in Metros/Urban for 35% Urban
Population ie. In 2021), > 2.10 lac ATMs (including on-site)
⚫ Approx Deposits: Rs. 162 Tn & Credit: Rs.116 Tn (Feb 2022)
⚫ Credit to GDP ratio indicates active participation of banking

in real economy, a low # shows need for more formal credit
⚫ Ideal ratio of 100% indicates robust demand for credit
without fear of a bubble in making…
⚫ India Credit to GDP ratio (Lending to biz & households)– 56%
(assuming GDP USD 2.7 Tn) (in 2015 it was one best rate of
64%)
⚫ Advanced economies approx. 88%, emerging market peers apprx. 130%,
with BRICS (excl India) being at 51, 88 161, 40 % respectively (in 2020-
2021)

Indian Co-operative Banks (Not Commercial Banks)
As on May 31, 2021,

• 1,531 urban cooperative banks (UCBs)
• 97,006 rural cooperative banks, making up 65% of the total asset size

Progress in Indian banking
◼ Diversification in banking: Banking has moved from
deposit and lending to :
 Merchant banking and underwriting
 Mutual funds
 Retail banking
 ATMs
 Internet/Digital banking
 Venture capital funds
 Factoring
 Insurance
◼ Enabling Universal Banking
 Discuss Examples in Class

Principles of Banking
9 principles that commercial banks follow;
1. Liquidity- Paying the deposited money on demand of customers is called liquidity
2. Solvency- Solvency means financial capability or sufficiency in the capital.
3. Profitability- The main objective of the commercial bank is to earn a profit.
4. Loan and Investments- Profitability arises from granting loans /making investments
5. Savings- Collect funds by creating savings facilities. Deploy savings in loans/investments
6. Services- Provide good service to its customers.
7. Secrecy- Maintain secrecy of customer data/info
8. Efficiency- Business and Management efficiency
9. Location- Location of branches/geo presence- customers

Banking Concepts/ Glossary
◼ Refer notes on 100+ Banking Concepts including
Glossary.

Roles of Banks
⚫ Roles of Banks: (See detailed products listing of
Banking Products)
⚫ Financial Intermediaries
⚫ Constituent of Payment & Settlement System
⚫ Provider of Financial Services
⚫ Banking:
⚫ Business of Trust
⚫ Liquidity, Profitability and Safety
⚫ Risks in Banking:
⚫ Credit Risk - Risks in Lending
⚫ Liquidity Risk - Managing Assets/ Liabilities
⚫ Interest Risk - Rates of Interest on Deposits/
Loans

Banker’s role as a Financial
Intermediary
⚫ Money lenders:
⚫ Lending money on interest for various purpose.
⚫ Banks:
⚫ Accept deposits for the purpose of lending
⚫ Intermediary between Depositors and Borrowers
⚫ Ability to mobilise large quantum of resources, for
lending and growth of the economy.

Function of Commercial Banks (typically !)
Commercial Banks
Primary Functions Secondary Functions
Acceptance of Deposits Agency Services
Advancing of Loans General Utility Services
Creation of Credit
Overdraft Term Loans
Clearing of Cheques Cash Credit Consumer Credit
Financing of Foreign Trade Discounting Trade BIlls Miscellaneous

Advances
Remittance of Funds Money at Call
Digital offerings on
asset/liability side Parag Shah for NMIMS- ASMOC
Functioning of a Bank
1. Need for loan products, appraisal process,

2. Introduction to working capital credit facilities
3. Types of Banking products – Covered in next section

4. Types of Deposit/Accounts- Covered in next section
5. Typical Branch based services- Covered in next section

Why customers need credit
facilities ?
⚫ Business – New set up and Expansion-
To build up capacity in the form of Fixed

Assets namely :
⚫ Land and Building
⚫ Plant and Machinery
⚫ Other Fixed Assets

Parag Shah for NMIMS- ASMOC 73
Why customers need credit
facilities ?
◼ Day to Day business operations
⚫ Need to produce goods and services for Sales
⚫ Purchase Raw Material to Produce Goods
⚫ Expenses to be met from the money realised from the sale of

such goods and services.
⚫ However the timing of realization of money from sales and

payment to be made for expenses incurred towards the
particular sales may be different .
⚫ If the timing of realization of money from sales is later than the

time for payment to be made for expenses incurred, customer
would need funds to bridge this gap.
Role of Banks
⚫ Act as Intermediaries between

⚫ Those who have Funds
⚫ Those who need Funds
⚫ Collect Deposits from various sources - Individuals,
Business
⚫ Provide loans / advances to those who require –
Personal / commercial purpose
⚫ Provide other services such as Safe Deposit Lockers,
Advising Services, Facilitate international trade
through Documents handling

To Lend or Not to Lend?
◼ Bank’s decision to Lend depends on a

combined assessment of
⚫ Qualitative Parameters and
⚫ Quantitative Parameters

Qualitative Parameters
⚫ Based on Risk assessment – Credit Risk

⚫ Bank’s assess Credit Risk by
⚫ Qualitative Parameters – Going beyond financials
⚫ Character
⚫ Capacity
⚫ Capital
⚫ Collateral
⚫ Condition
⚫ Personal Interaction with the customer
⚫ Gathering information through indirect sources such as
competitors, customers, market etc.
⚫ Visit to the place of business / office / factory

Quantitative Parameters
⚫ Analysis of Financial Statements – P & L A/c,

Balance sheet
⚫ Past statements analyzed for trend
⚫ Based on past trend justify projections for current

year
⚫ Check latest Industry trends to confirm projections

Quantitative Parameters
⚫ Relevance of various items analyzed

through Ratios,
⚫ Profitability
Ratio
⚫ Debt Equity Ratio
⚫ Current Ratio
⚫ Internal Credit Ratings

⚫ Assessment of Working Capital
Requirement
Working Capital Cycle
Cash
Debtors/ Raw
Receivables Material
Finished Work in
Goods Progress

80
Factors influencing WC Requirements
⚫ Nature of business
-Buying cash and selling in credit
⚫ Manufacturing process
-Complexity of the process (could influence time taken)
⚫ Infrastructural support
-Access to the markets
⚫ Seasonality in demand
⚫ Shelf life of RM / Finished product

-Perishable nature Parag Shah for NMIMS- ASMOC 81
Working Capital Gap
⚫ Business entities need Current Assets for continuation of

Business Cycle
⚫ These Current Assets are financed through

⚫ Excess of Long term Sources
⚫ Other Current Liabilities like Sundry Creditors
⚫ Current Liabilities may not fund Current Assets completely
⚫ Excess of Current Liabilities over Current Assets is Working

Capital Gap (WCG)
⚫ This Gap is usually funded by borrowing from banks in the form

of Working Capital Finance
Banking Products ie. Fund Based Facilities (For
working capital requirements in particular of
customers)

Types of Working Capital Limits
◼ Cash Credit
◼ Overdraft
◼ Bills Discounting
◼ Pre / Post Shipment Finance
◼ Short Term / Demand Loans
84
Cash Credit
⚫ Most common form of working Capital Facility
⚫ Sanctioned against Hypothecation of primary security of Raw Material,

Work in Progress, Finished Goods and Sundry Debtors
⚫ Limit is made available in a Running Cash Credit Account with Cheque

Book facility
⚫ Account can be drawn to the extent of Drawing Power / Sanctioned

Limit whichever is less
⚫ Limits renewed every 12 Months
⚫ Interest charged at monthly intervals on amount O/s at the end of the

day
85
Overdraft
⚫ Sanctioned against Primary / Collateral security
⚫ Sanctioned in Current Accounts with Cheque Book facility
⚫ Account can be drawn to the extent of limit sanctioned
⚫ Limits to be renewed every 12 Months
⚫ Interest charged at monthly intervals on amount O/s at the end

of the day
⚫ Usually given as an additional facility or when financials are not

strong enough to support funding
86
Bill Discounting
⚫ A Bill is documentary evidence of a transaction between a Buyer & a

Seller
⚫ It is drawn by the seller on the buyer (Bill of Exchange)
⚫ It contains details of transaction such as
⚫ Date of Transaction,
⚫ Description of Goods Sold
⚫ Quantity
⚫ Price of Goods Sold
⚫ Due date for Payment
⚫ Is a Negotiable Instrument under Negotiable Instruments Act
⚫ Buyer acknowledges the transaction by accepting the bill
87
Bill Discounting
⚫ Bills accepted by Buyers are purchased by Bank (Discounted)
⚫ Amount made available to the Seller after keeping a Margin
⚫ On Due Date buyer makes the payment as agreed which is received by

Bank
⚫ Seller / Borrower not required to wait till the Due Date of Bills to receive
the Funds
⚫ Interest charged till the bills are realized
⚫ Bills Discounting is a form of Financing Debtors
88
Pre Shipment Finance
⚫ Also known as Export Packing Credit (available upto 180 days)
⚫ Special working capital facility for financing exports
⚫ Financed in the form of Limits to complete Trade Transaction
⚫ Covers working capital required for Production, Export of Goods

& related expenses
⚫ Gets converted into Post Shipment Finance on dispatch of Goods
⚫ Interest charged till the Export Bills are realised
⚫ Available in INR / Foreign Currency
⚫ Customers enjoy preferential rate of interest compared to Cash

Credit / Overdraft
89
Post Shipment Finance
⚫ Special working capital facility for Exporters
⚫ Finance in the form Export Bills Discounting, Finance against Duty

Draw Back
⚫ Keeps the business cycle running till the realization of export proceeds
⚫ Available for a period up to 180 days for each transaction
⚫ Interest charged till the Export Bills are realized
⚫ Customers enjoy preferential rate of interest compared Cash Credit /

Overdraft
90
Term Loans
⚫ Financial assistance for medium / long

term requirements
⚫ Usually availed* for creation of Fixed
assets
⚫ Repayment period varies from 1 year to
more than 10 years
⚫ Interest charged till the full amount is
repaid
* Borrower sometimes uses it for meeting Long term working capital needs too
91
Term Loan
⚫ Given for acquiring fixed assets which would be used for more
than a year.
⚫ The fundamental principle of Term Loan is that :
⚫ Fixed Asset would be used to produce goods and services
⚫ The company would sell such goods and services to
generate revenues
⚫ For generating revenues, the company would incur
expenses and this should be deducted and this money is not
available for repayment of term loan.
⚫ Similarly all non cash expenses like depreciation should be
added back to the profit after tax.
⚫ The interest for long term funded should be added back to
the PAT.
92
Non Fund Based Facilities
93
Need for Non Fund Based Limit
⚫ Fund based facilities come with cost in the form of Interest at

regular intervals
⚫ Banks may not provide Working Capital assistance entirely by

way of Fund Based Limits
⚫ Non Fund Based facility is used for building up of Other Current

Liability
⚫ Banks earn good Fee Income
94
Non Fund Based Facilities
⚫ Non Fund Based facility is the facility provided by bank without

disbursement of any funds.
⚫ Basic characteristics :
⚫ At the time of providing facility , issuer of Non Fund Based facility
does not disburse any fund.
⚫ In case the customer, on behalf of whom the issuer issues this
facility, does not keep his commitment (i.e., devolvement ) , the
issuer would pay the amount.
So in case of devolvement , the non fund based facility is

converted into fund based facility.
⚫ Examples
⚫ Letter of Credit – for importers / exporters
⚫ Bank Guarantee – for execution of Contracts95

1-NMIMS Banking 1 of 5

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1-NMIMS Banking 1 of 5

Uploaded by

Copyright:

Available Formats

Ref : RBI & Various Articles

/published papers/Text Books and

Banking & Insurance

The Presentation has to be read/understood in context

PS : No part of the presentation may be used without the express consent of

Parag Shah for NMIMS- ASMOC

Parag Shah for NMIMS- ASMOC

…not to forget the pangs of Indian politics

◼ Gross Domestic Product (GDP) Growth

Parag Shah for NMIMS- ASMOC

4 KEY themes and trends for 2023

Parag Shah for NMIMS- ASMOC

Household debt as a % GDP

Parag Shah for NMIMS- ASMOC

Parag Shah for NMIMS- ASMOC

Parag Shah for NMIMS- ASMOC

Parag Shah for NMIMS- ASMOC

◼ The chronology of topics being taught may vary to keep the

◼ The no of hours may vary depending on the depth of

◼ Importance is placed for application of the concept in corporate

Parag Shah for NMIMS- ASMOC

Classes Particulars Book References No of Hours

Classes Particulars Book References No of Hours

Basics of Insurance: -History of Insurance - Basic concepts of

Insurance Types(Endowment, Term plan, Moneyback, Child plan, ULIP)

Reinsurance (Treaty & Facultative) Retrocession MWPA (Married

Classes Particulars Book References No of Hours

Parag Shah for NMIMS- ASMOC

Prescribed Text Books:

References: chapter references see official course module – word/pdf file

Web Based References:

An institutional framework of a country to

Parag Shah for NMIMS- ASMOC

FINANCIAL ASSETS FINANCIAL INSTITUTIONS FINANCIAL MARKETS

Parag Shah for NMIMS- ASMOC

Financial Markets Financial Intermediaries Financial Services

Credit Markets Insurance

MB, IB, VC*, PE etc

Forex Capital Mkt Commodities Money Mkts

Primary (IPOs, NFOs, Pvt. Placement)

◼ The non-banking finance corporations (NBFCs), commercial banks,

Parag Shah for NMIMS- ASMOC

Parag Shah for NMIMS- ASMOC

4. Inter-Corporate Deposit (ICD) is an unsecured borrowing by corporates and

Parag Shah for NMIMS- ASMOC

DP, Depository, Registrar (RTA) and ASBA

• A bond is a debt instrument that provides a periodic stream of interest

Key Bond Characteristics

a) Pricing Coupon Bonds

Parag Shah for NMIMS- ASMOC

▪ if y > coupon rate, P < face value

These results also demonstrate that there is an inverse-relationship

Parag Shah for NMIMS- ASMOC

Stock exchanges in India,

The tools of the trade :

Parag Shah for NMIMS- ASMOC

Parag Shah for NMIMS- ASMOC

Parag Shah for NMIMS- ASMOC

Source : The Balance Parag Shah for NMIMS- ASMOC

◼ Learnings from the previous Slide

Parag Shah for NMIMS- ASMOC

Parag Shah for NMIMS- ASMOC

⚫ Other opinion- “Bank” is originally derived from the

Parag Shah for NMIMS- ASMOC