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• • • • • Shraddha Damania Mihir Mehta Charmi Morakhia Vikas Mehta Noman Agashiwala
PARA BANKING AND UNIVERSAL BANKING
• What is ‘Para Banking’? It provides a framework of rules/regulations/instructions to the Scheduled Commercial Banks for undertaking certain financial services or para-banking activities as permitted by RBI.
• What is ‘Universal Banking’? Universal Banking is a superstore for financial products under one roof. Corporate can get loans and avail of other handy services, while can deposit and borrow. It includes not only services related to savings and loans but also investments. • Relationship between Para-Banking & Universal Banking?
Most of the rationales for regulating banks fall into broad categories:
• • • • • • • Subsidiary Companies Equipment leasing, Hire purchase business and Factoring services Banks undertaking PD (Primary Dealer) business Mutual Fund Business Insurance business Underwriting of Corporate Shares and Debentures & bonds of Public Sector Undertakings ‘Safety Net’ Schemes
and c) stock underwriting . b) long term company loans.Commercial Banking Retail Banking Merchant Banking What Is Merchant Banking? A merchant bank deals with the commercial banking needs of a) international finance.
Ensure that the portfolio is diversified Sub-underwriting Carefully evaluate the proposals Banks should not underwrite issue of Commercial Paper by any Company or Primary Dealers Banks should not extend Revolving Underwriting Facility to short term Floating Rate Notes/Bonds or debentures issued by corporate entities. • • . • I. 1949 regarding holding of shares in any company as pledgee / mortgagee or absolute owner. should be strictly adhered to. III. II. The banks have to ensure that underwriting commitments should comply with the ceiling prescribed for the banks’ exposure to the capital markets.UNDERWRITING OF CORPORATE SHARES & DEBENTURES • The statutory provision contained in Section 19(2) & (3) of the Banking Regulation Act.
UNDERWRITING OF CORPORATE SHARES & DEBENTURES (CONTINUE) • An annual review covering the underwriting operations taken up during the year. the commission earned. with company-wise details of such operations. 1993. may be placed before their Boards of Directors within 2 months of the close of the fiscal year. • Banks/Merchant banking subsidiaries of banks undertaking underwriting activities are also required to comply with the guidelines contained in the SEBI (Underwriters) Rules and Regulations. the shares/debentures devolved on the banks. the loss (or expected) from unloading the devolved shares/debentures indicating the face-value and market value thereof. etc. and those issued from time to time. .
com UNDERWRITING OF BONDS OF PUBLIC SECTOR UNDERTAKINGS 1. the commission earned. www. the loss (or expected loss) from unloading the devolved bonds indicating the face-value and market value thereof. etc.www. bonds devolved on the banks. 3. The banks should formulate their own internal guidelines as approved by their Boards of Directors on investments in and underwriting of PSU bonds. including norms to ensure that excessive investment in any single PSU is avoided.com 2. .ManagementFunda. and place the same before their Boards of Directors within two months from the close of the fiscal year.ManagementFunda. Banks should subject the proposals for underwriting to proper scrutiny having regard to all the relevant factors and accept such commitments only on wellreasoned commercial considerations with the approval of the appropriate authority. Banks should undertake an annual review of the underwriting operations relating to bonds of the public sector undertakings. with PSU-wise details of such operations.
irrespective of the prevailing market price. large exposures are assumed by way of commitments to buy the relative securities from the original investors at any time during a stipulated period at a price determined at the time of issue. such schemes were offered without any request from the company whose issues are supported under the schemes. Apparently.GUIDELINES FOR 'SAFETY NET' SCHEMES • Under such schemes. In some cases. • • . there was no undertaking in such cases from the issuers to buy the securities. as the investor will take recourse to the facilities offered under the schemes only when the market value of the securities falls below the pre-determined price. There is also no income commensurate with the risk of loss built into these schemes.
30 per cent of its own paid-up share capital and reserves. OR In a subsidiary company. 20 per cent of the bank’s paid-up share capital and reserves. Investments which are classified as 'Held for Trading' category. As pledgee or a mortgagee 30 per cent of the paid-up share capital of that company . 10 per cent of the bank’s paid-up share capital and reserves. financial institutions. stocks & other exchanges.Investment ceiling in financial service companies. . Banks participation in the equity subject to RBI approval.
Discount Factoring – Advances between 70 to 85%.ManagementFunda.com • • • Maturity Factoring – Maintains sales ledger. Finance Factoring – Advances Funds against produce. Hire purchase business and Factoring services.ManagementFunda.Equipment leasing. a) Factoring Types of Factoring www. www.com .
b) Leasing www.com . expecting to sell it secondhand. c) Hire purchase agreement After all the payments have been made.ManagementFunda.ManagementFunda. • Operating Leasing : The leasing company will lease the equipment. plus charges.com • Finance Leasing : The leasing company recovers the full cost of the equipment. the business customer becomes the owner of the equipment www. over the period of the lease.
40% & 50 % respectively .Para banking Guidelines for Leasing. b)Departmentally in existing organization. HP & Factoring a)Forming of subsidiaries. • Group Borrower. • Single Borrower & Group Borrower 15% of capital funds or up to 20% for infrastructure Projects. • Skilled personnel & adequate infrastructural facilities. • Risk weight of 100%.
• Changes in income recognition and provisioning for loans/advances be implemented.OTHER REQUIREMENTS • Balanced portfolio vis-à-vis aggregate credit .10 %. • Income recorded as per AS-19 leases. • Approval of the Boards to avoid asset liability mismatch. • Equipment leasing companies & NBFCs. .
www.com .ManagementFunda.ManagementFunda.com MUTUAL FUND BUSINESS • Approval • Compliance • Bank-sponsored mutual funds www.
• Proposal to extend any credit facility to individuals against the security of units of mutual funds. • Banks holding custody of mutual fund units on behalf of their customers. • Banks cannot buy back units of mutual funds from their customers. .TERMS AND CONDITIONS FOR MARKETING MUTUAL FUND • Banks should only act as an agent of the customers. • Banks should not acquire units of mutual funds from the secondary market.
ManagementFunda.www.ManagementFunda.com MONEY MARKET MUTUAL FUNDS www.com .
TERMS AND CONDITIONS TO OFFER CHEQUE WRITING FACILITIES TO INVESTORS • Commercial arrangement • In the nature of a drawing account • Pre-funding of the drawing account .
www.PRIMARY DEALERSHIP •Meaning •Business Sense www.com PARA BANKING:.ManagementFunda.ManagementFunda.com .
ELIGIBILITY CRITERIA • Owned Capital of Rs 1000 crores • Minimum CAR of 9 % • Net NPA of less than 3 % .
• Investment valuation of PD Portfolio. • A proper MIS has to be maintained. .PRUDENTIAL NORMS • Investment will be counted as a part of SLR. • Separate SGL for their PD Subsidiaries with minimum balance of Rs 100 crores.
4. 8. 5. 2. ABN AMRO BANK KOTAK MAHINDRA BANK BANK OF BARODA HDFC BANK LTD HSBC BANK LTD JP MORGAN CHASE BANK CITI BANK LTD CANARA BANK CORPRATION BANK LTD www.ManagementFunda.com . 3. 7.www.ManagementFunda.com PRIMARY DEALERS IN INDIA 1. 9. 6.
Risk Free.PARA BANKING NORMS FOR INSURANCE (BANCASSURANCE) • Meaning and My Experience • Business Scope Revenue from Non Core Activity. Synergies (Insurance & Banking). . Better Utilization of Infrastructure.
RBI NORMS FOR INSURANCE BUSINESS BY BANKS • Joint Venture or Subsidiary • Application Approval • Employee Qualification .
SBI LIFE INSURANCE LTD • Tie up with insurance companies Eg:. KOTAK OLD MUTUAL • Group of banks forming a subsidary Eg:. HDFC STANDARD.CANARA HSBC ORIENTAL BANK OF COMMERCE LIFE INSURANCE .ICICI PRUDENTIAL .CURRENT SCENARIO • Subsidiaries Eg:.
ManagementFunda.com .www.ManagementFunda.com NEWS www.
BANK BOOKS TO CARRY REAL NUMBERS Bank will have to value assets on current rather than on historic cost.POST-2011. . State bank of India has already taken the initiative to shift from the current Indian standard of accounting to IFRS. Banks will have to adopt the international financial reporting standards (IFRS) by 2011.
says CEO IDBI Bank-led consortium of lenders. have raised $ 1.STANCHART TO HIRE 850 PEOPLE FOR PRIORITY BANKING RRBs embrace core banking solutions In step with RBI's direction to implement 100% core banking solutions (CBS) by September 2011.1 bn loan for national carrier Air India to purchase aircraft. car loans. ICICI Bank to focus on home. . United Bank of India (UBI)-sponsored regional rural banks in four states have started working on their IT-systems.
ManagementFunda.ManagementFunda. auto loans www.com .com SUUTI eyes Rs 7K cr from sale of 17% in Axis Bank The government has made the first move to use the surplus funds of commercial banks to meet its short-term cash needs RBI allows cash withdrawal from merchant banker terminals IDBI Bank lowers interest rates on deposit.www.
India's top mortgage lender. said on Tuesday it planned to raise Rs 40 billion ($820 million) through two. Banks want curbs on free ATM use IDBI Bank revives plan to sell mortgage subsidiary India’s top 12 banks log 55% jump in Q1 profit: CARE .and three-year bonds.IndusInd Bank raises US$ 100 million through Qualified Institutional Placement (QIP) Housing Development Finance Corp.
SBI launches 'My Home' campaign for home loans Retired teachers. said on Tuesday it had agreed to buy some Asian businesses of the Royal Bank of Scotland in a $550 million deal. JPMorgan profits a strong sign for banking sector. Traders can make to Banks Business Correspondent list.ManagementFunda.com State-rescued Royal Bank of Scotland reported a five-fold jump in bad debts.com .ManagementFunda. Australia and New Zealand Banking Group Ltd. www. www.
ManagementFunda.com BIBLOGRAPHY • • • • • • • PARA BANKING NORMS BY RBI (CIRCULAR) www.dfhi.in AXIS BANK ANNUAL REPORT 2008-09 ECONOMIC TIMES MINT INDIAINFOLINE NEWSLETTER www.co.co.in www.ManagementFunda.www.com .rbi.
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