anilanantagiri@gmail.

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 OBJECTIVE
⚫ Provide an overview of Banking Domain

⚫ Enable Technology people understand Financial Terms

⚫ Explain Operations in specific lines of banking

⚫ Cover Global Banking Practices

⚫ Introduce some of the recent developments in banking

KEYWORDS
⚫ Concept of money
⚫ Financial Instruments
⚫ Financial Statements
⚫ Introduction to Banking
⚫ Retail Banking
⚫ Consumer Lending
⚫ Cards and Payments
⚫ Commercial and Wholesale Banking
⚫ Investment banking
⚫ Investment Management
⚫ Settlement
⚫ Corporate Services
⚫ Insurance
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 MONEY
⚫ Standard unit of Exchange- advancement over barter system
⚫ Currencies-based upon development level of countries
⚫ Exchange Rates- Who decides, Pegged currencies
⚫ Face value of currency
⚫ Standard Value currency

⚫ Interest charged on loan amount- Simple and Compound

⚫ Simple- On Rs.100 by 10 per cent, amount paid every year is Rs. 10
⚫ Compound- On Rs.100 by 10 per cent, amount paid every year varies

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 INFLATION
⚫ Rise in cost of goods and services over a period
⚫ Real rate of interest = Nominal rate of Interest-Inflation Rate

⚫ Nominal rate of interest = 10%

⚫ Inflation rate 4%

⚫ Real rate of interest = 6%

⚫ Increase in Prices reduces the value of currency

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 COST OF CAPITAL
Land, Labor, CAPITAL, Enterprise(Idea)

⚫ Depends upon- Borrower, type of financing, market timing, collateral,

tenure for debt
⚫ Cost of capital include following
⚫ Interest for debt
⚫ Dividend, expected earning for equity

⚫ WACC- Weighted Average Cost of Capital- If more than one source of

finance is used.
⚫ WACC= Cost of each*Weight

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FINANCIAL INSTRUMENTS
⚫ Capital- Business needs capital for operations, fixed assets.

⚫ Methods by which capital can be raised

⚫ Debt
⚫ Bank Loans
⚫ Bond/Debentures: Fixed, Floating-rating, Corporate, Govt.

⚫ Equity
⚫ Owners equity
⚫ Venture Capital
⚫ IPOs

⚫ Mutual Funds
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…CONTINUED
⚫ Derivatives
 Forwards
 Future
 Options

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DEBT
⚫ Money owed by one entity to other
⚫ Cost is interest
⚫ Debt is considered senior to equity i.e. the interest on debt is paid
before the dividends on stock in case of liquidation of assets
⚫ Examples- Bonds, Loan, Commercial papers
⚫ Investors chose between debt and equity based on their investment
objectives

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BONDS
⚫ An investor loans money to an entity at a specific interest rate.
⚫ Small deposits from multiple people
⚫ Investment ceiling
⚫ Interest is generally paid semiannually
⚫ Factors influencing coupon rate
⚫ Prevailing economic conditions
⚫ Issuers Credit rating (risk)
⚫ In return investorgets the bond/certificate which contains:
⚫ Interest rate (Coupon rate)
⚫ Maturity date (Repayment date)
⚫ Face amount

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…CONTINUED
⚫ Corporate bond
⚫ Secured bonds- backed by specific assets
⚫ Unsecured bonds (Debentures)

⚫ Treasury Securities (Government agencies)

⚫ Treasury bills-Short term
⚫ Treasury bonds-Long term
⚫ Most secure bonds

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 EQUITY
⚫ Equity (Stock)- represents ownership interest
⚫ Common Stock
⚫ Voting Rights
⚫ Majority shareholders manage organization
⚫ Popular
⚫ Corporations sells it through IPO
⚫ Can be traded in secondary markets-BSE, NYSE etc.

⚫ Preferred Stock
⚫ No voting rights
⚫ Fixed rate of return

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MUTUAL FUNDS
⚫ Investment companies
⚫ Pool resources from individual investors
⚫ MF companies invest into diverse sector of economy
⚫ Investors are equally responsible for loss or gain
⚫ Dividends earned are distributed according to the investment

⚫Hedge Fund
⚫A group of investors who take financial risks together in order to try
to earn a lot of money

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 DERIVATIVES
⚫ It is a contract between two or more parties
⚫ Obligation on buyer and seller

⚫ Forward
⚫ Agreement to buy/sell an asset in future at a specified price
⚫ Ex. MCX

⚫ Future
⚫ Agreement to buy/sell an asset in future at a future price

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FINANCIAL MARKETS
Place where financial instruments are traded

⚫ Primary Financial Markets

⚫ New financial instruments are issued
⚫ Initial Public Offering

⚫ Secondary Financial Markets

⚫ Primary instruments (Shares) are traded
⚫ Investors can monetize their shares
⚫ Ex. BSE, NYSE

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BANKING

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 BANKING
⚫ Any financial institution licensed to accept deposits and issue
credit through loans

⚫ Functions
⚫ Channelize savings
⚫ Credit facilities to borrower
⚫ Investment avenues o investors
⚫ Facilitate the trade and commerce dealings
⚫ Financial Inclusion
⚫ Minimize cash transactions
⚫ Provide financial services
⚫ Creation of money in the economy
⚫ Restricts expansion of black money

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STRUCTURE OF BANKING SECTOR IN INDIA

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CENTRAL BANK
⚫ Banker’s bank
⚫ Regulator to other banks
⚫ Governments bank
⚫ Provide stable monetary and financial policy
⚫ Decides policy rates-Impacts money in the market
⚫ Protects rights of the consumer by supervising banking institution
⚫ Monitors inf low and outf low of foreign currencies
⚫ Clearing house facility
⚫ Banker of last resort
⚫ Ex. RBI

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HOW DO BANK EARN PROFITS?
⚫ Difference in the rate of interest between depositors and lenders
⚫ Number of products
⚫ Through investment of its resources
⚫ Fee based services
⚫ Net banking
⚫ Mobile banking
⚫ Demand Draft

⚫ Universal Banking
⚫ Commercial as well as investment banking services under one roof

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 BASEL FRAMEWORK
⚫ BIS- Bank of International Settlement
⚫ Located in Basel, Switzerland
⚫ Fosters co-operation among central banks and other agencies in
pursuit of monetary and financial stability.
⚫ A forum to promote discussion and policy analysis among central
banks and within the international financial community
⚫ It sets standards for best practices in banking which are ensured by
all banks

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SERVICES OFFERED BY BANK
1. Corporate banking
1. Trade Finance
2. Cash Management

2. Retail Banking
1. Deposits
2. Branch & Electronic Banking
3. Credit card services
4. Retail Lending- Home, Personal, Car
5. Private banking & wealth Management
6. Business banking for SMEs

3. Investment Banking

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 RETAIL BANKING
⚫ Serves financial needs of individuals (Consumers) and SMEs
⚫ Large volume low value transactions
⚫ Products and services
⚫ Deposits
⚫ Loans
⚫ Credit cards
⚫ Debit cards
⚫ Investment products
⚫ Local branches, ATMs
⚫ Net Banking
⚫ Mobile Banking

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ASSETS AND LIABILITIES IN BANKING
⚫ Liabilities- Money received by bank from depositors
⚫ Asset- Loans extended by bank
⚫ Revenue- Money that is maid by an organization in year
⚫ Liquidate- To sell a business/property especially to pay off debt

⚫ Asset-Reconstruction-Here, the right or interest of any bank or financial

institution in any financial asset is acquired by the asset re-construction company for
the purpose of realization of dues.

⚫ NPA-Non-Performing Asset (bad loans)

⚫ An asset of a bank (such as a loan given by the bank) turns into NPA when it
ceases to generate regular income such as interest etc for the bank
⚫ Biggest challenge faced by Indian Public sector banks
⚫ Ex. Kingfisher owes 7000 crore to PSBs

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DEPOSIT PRODUCTS
⚫ Demand Deposits
⚫ Deposited and withdrawn on demand
⚫ Saving and Current

⚫ Term Deposit
⚫ Money kept with the bank for a specified period
⚫ Fixed Deposit
⚫ Attractive returns
⚫ Ensure capital availability for banks

⚫ D-MAT Account
⚫ For trading and of shares

⚫ No-Frill Accounts
⚫ Limited services at a low cost
⚫ Zero balance accounts
⚫ Jan-Dhan accounts 25
RETAIL CHANNELS

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 BRANCH BANKING
⚫ Teller Operations
⚫ Teller- Deals directly with consumers
⚫ Serves as front line in banking

⚫ Relationship Manager
⚫ Banks POC to the customer
⚫ Develops tailored banking solutions for each client

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CORE BANKING/MULTI-BRANCH BANKING
⚫ Network of bank which allows customerof a bank to perform
transaction at any branch of the same bank

⚫ Geographical constraints are removed

⚫ Branch customer becomes bank’s customer

⚫ This is achieved through a set of software called banking applications

⚫ Ex. Finacle(Infosys)

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 ATM
⚫ Computerized Telecommunication Device

⚫ Typical ATM Services

⚫ Cash withdrawal – Limit per day restricted by respective bank

guidelines
⚫ Money Transfer between accounts
⚫ Cash/ Check Deposits
⚫ Utility Bill Payments
⚫ Balance enquiry /Account Statements
⚫ Mobile Top Ups
⚫ VISA & Master networks are large global networks that service ATMs.
⚫ Interbank operations are settled in clearing house

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 TELEPHONE BANKING
⚫ Transactions over phone

⚫ Automated phone answering systems(IVR/VRU) with keypad response

⚫ Voice recognition capability

⚫ VRU- Voice Response Unit-A Programmed computer responds to caller

⚫ IVR- Interactive Voice Response-Computer phone application which

accepts keypad selection and responds

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 ONLINE BANKING
⚫ Financial transactions on a secure website operated by respective bank
⚫ Batch transactions – operations are carried out with least human
intervention
⚫ Bill Pay and Recurring payments
⚫ E-Tax
⚫ Statements : Monthly or quarterly bank statements
⚫ Transaction history
⚫ Fund transfer
⚫ NEFT
⚫ RTGS
⚫ IMPS

⚫ IFSC- Indian Financial System Code

⚫ is an alpha-numeric code that uniquely identifies a bank-branch
participating in the NEFT system.
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 FUND TRANSFER
NEFT
⚫ National Electronic Fund
Transfer
⚫ No transaction limit
⚫ Not a immediate mode of
transfer during banks working
hours only.
RTGS
⚫ Real Time Gross Settlement
⚫ There is minimum amount limit
⚫ Immediate mode of transfer
though during working hours of
bank
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 IMPS
⚫ Immediate Payment Service
⚫ Instant money transfer through mobile phone or online
⚫ Mobile numberof remitterand beneficiary should be linked to their
respective bank accounts
⚫ Best way for transferring remittances
⚫ MMID- Mobile money identifier is generated
⚫ There is a limit on amount of transaction

⚫ SWIFT- Society for Worldwide Interbank Financial

Telecommunications
⚫ SWIFT transports messages between two financial institutions. This
activity involves the secure exchange of proprietary data while ensuring its
confidentiality and integrity
⚫ BIC- Uses Bank Identifier Code

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INTERNATIONAL BANKING
⚫ Facilitate imports and exports of their clients – trade financing
⚫ Arrange for foreign exchange – cross-border transactions and foreign
investments
⚫ Participate in international loan syndicate – lending to MNCs- project
financing and to sovereign governments – economic development
⚫ Trade foreign exchange products for their own account
⚫ Gateway for the transfer of remittances by expatriates

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INVESTMENT BANKING
⚫ Functions
⚫ Private Equity
⚫ Buying/Selling
⚫ Corporate Advisory
⚫ Managing company assets
⚫ Capital Raising
⚫ Underwriter
⚫ Security middlemen
⚫ Long term financing
⚫ Emerging Markets
⚫ Merger & Acquisitions
⚫ Ex. TechMahindra-Satyam, IGate-Patni, Facebook-Whatsapp

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CARDS AND PAYMENTS
⚫ Cards- Fastest growing means of non-cash payments
⚫ Non-cash payment instruments
⚫ Cheque
⚫ Debit card
⚫ Credit card
⚫ C0-Branded cards- like credit cards associated with a particular firm
⚫ Affinity card-Tie-up between a bank and an organization
⚫ Corporate/ Commercial card
⚫ Prepaid card- gift card, mall cards

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 EMERGING PAYMENTS
⚫ Internet Currencies/Digital cash/E-wallets
⚫ Preload account with money
⚫ Transfer money or make payments
⚫ No time barrier
⚫ No need to enter card credentials
⚫ Ex. Paytm wallet

⚫ Contactless Payments
⚫ Radio Frequency ID
⚫ Near Field Communication(NFC)
⚫ Eliminate swiping card, signing slip at the POS
⚫ Targeted at eliminating cash transactions at retail counters

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 MORTGAGE
⚫ A customers personal guarantee with the lender
⚫ Commonly used to refer to loan for the purpose of purchasing property.

⚫ Commercial Mortgage
⚫ Commercial building as a collateral
⚫ Loan taken by businesses

⚫ Residential Mortgage
⚫ Residential property as a collateral to secure repayment.
⚫ Loan taken by individual borrowers

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MORTGAGE FLOW

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ROLE OF INFORMATION TECHNOLOGY (IT) IN
THE BANKING
⚫ Competitiveness compel to adapt to latest technologies
⚫ Instrument of cost reduction
⚫ Effective communication with people and institutions associated with
the banking business.
⚫ Better market infrastructure
⚫ helps the financial intermediaries to reach geographically distant and
diversified markets in a cost effective manner

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INSURANCE
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⚫ Definition: Insurance is defined as the equitable transfer of the risk
of a loss from one entity to another in exchange for payment

⚫ Terminologies:

⚫ Insurer: Insurance company selling the policy

⚫ Insured: Policy holder or the entity availing the policy

⚫ Re-Insurance: Insurance by another insurerof all or a part of a risk

previously assumed by a insurance company

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 CONTINUED…
⚫ Premium: An amount charged by insurer in order to cover insured
against a risk

⚫ Factors determining premium amount:

⚫ The Frequency of Claims (how many)
⚫ The Severity (Cost of each Claim)
⚫ Condition of insurer, kind of policy, probability of risk, etc.

⚫ Underwriter: Person who approves the policy and determines the

premium to be charged against a coverage.

⚫ Claim: Request by insured in order to seek policy benefits from insurer

⚫ Adjudicator: One who processes or settles the claims.

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TYPES OF INSURANCE
⚫ Life Insurance (Long Term)
⚫ Non-Life Insurance (Short Term)

⚫
⚫
⚫

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CATEGORY OF INSURANCE
⚫ Dental
⚫ Health
⚫ Life
⚫ Business
⚫ Residential
⚫ Transport/Communication
⚫ Other

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INSURANCE PROCESSES
Branches of Insurance company

1) Policy Administration Systems

2) Claim Management System
3) Investment Management System
4) Third Party Administration Systems
5) Risk Management Solutions
6) Regulatory & Compliance
7) Actuarial System (Valuation & Pricing)

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