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CBM

Term IV --Session I
2017
PGP 20 Batch

Pankaj Baag
Faculty Block 01, Room No 21

Mob: 8943716269
Ph (O): 0495-2809121
Ext. 121
Email: baagpankaj@iimk.ac.in

Likely Evaluation Scheme:

1.Assignment + CP = 20%
2.Project + CP = 40%
3.End Term Exam (open Book/booklet) = 40%

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• VC PASSWORD CBM2017

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1 Assignment (1 or 2) = group of 6; presentation of 25 minutes
2 Bank annual report analysis (group of 6) presentation
3 Project (group of 6) : create credit rating template; credit rating
of a company; WC proposal analysis; create a retail/Agl product
with scoring facilities (including presentation)

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Yr 1st assignment • Go to rbi.org.in • Search the site • Make a list of 20 most important developments in the last 5 yrs and give reasons • Group of 2 or 3/individual • Last date: 15 June 5 am 5 .

Banking career • People empathy • Knowledge • Accountability • Hard work • Attitude • Pioneer • Professional approach • Analytical • Information literate • Avoid complacency 6 .

Chapter 1 7 .

Hundi (means to collect) • 1786 -.The General Bank of India • Agency houses of Bombay/Calcutta – commercial banking concept 8 . Evolution of Banks in India • Desi Banking .

Phases of banking Growth In India • Banking in pre Independence Era • Banking Growth in post Independence Era • Banks Nationalization Phases • Diversification of Banking Operations • Banking in post liberalization era 9 .

Ms Ferguson & Co Combined banking with other activities • The rise of the joint stock banks : bank of Hindoostan • Failure --1829-32: Bank of Hindoostan. draft.otherwise • Banking Companies Act 1949 – Banking Regulation Act 10 . 1913. even. profit. banking. …accept deposits.withdrawal by cheque.. safety. Blade Mafia.. Sahukars. in 1918 Sholapur bank ltd • Speculation. BOE. banker.- bank.. Banking in pre Independence Era • Ancient Scripts • Banker’s status (importance) and service • Hundis. amended in 1936 : section 277 G (1) . Financial Inclusion • Sequence of rise of banks in India • Agency Houses : Ms Alexander & Co. reckless attitude • Companies Act.

(replaced by Govt paper money) …open branches. Bank of Mysore -1906 -1913 • 1913-1917 crisis 11 • RBI 1935 . withdrawn in 1862. Contd. inland exchange 1839 • Bank of Madras 1840. Canara Bank. Bank of Bombay 1843 (1868) • Bank of Allahabad 1865 • PNB 1894 • BOI. CBI. • Presidency bank -1809 Bank of Bengal …Note issue power in 1823. BOB. Indian Bank..

but allowed to hold balances.. 1955 SBI Act. manage public debt.SBI • 1921. • Amalgamation of the presidency banks into the imperial bank of India…thereafter..no power to issue notes. Contd..by Imperial bank of India Act 1920. have clearing houses..SBI created • 1935 RBI took over all these functions but allowed IBI to act as agents 12 ..

Phases of banking Growth In India • Banking in pre Independence Era • Banking Growth in post Independence Era • Banks Nationalisation Phases • Diversification of Banking Operations 13 .

all of them since merged with SBI • Social control on banks imposed 1967 …but failed…so nationalization of banks…(what are your views on earlier RBI Governor’s wishes to privatization…) • Regional rural banks 1975 • Diversifications 1985 • Liberalisation 1991 .Banking Growth in post Independence Era • RBI entrusted with powers for overall supervision of banking system.banking operations • Globalization 2001 14 . 1st bank to be nationalized.. monitor and control the banking growth and operations in the country • 1955. 8 associate banks 1957-1960. IBI renamed as SBI. • nationalized in 1948 to direct. expanding.

Phases of banking Growth In India • Banking in pre Independence Era • Banking Growth in post Independence Era • Banks Nationalisation Phases • Diversification of Banking Operations 15 .

.14 banks • 1980 …another 6 banks • Banking system. 1970 • Reap social benefits • Adequate credit to core sector • Professionalism • New entrepreneurs • Training/good service conditions to bank staff 16 .. which touches and should touch all Indian Lives should be inspired by large social purpose.serve national priorities/objectives…hence socially controlled/publicly owned • Broad objectives mentioned in Banking Companies (Acquisition and Transfer Of Undertakings) Act.. Banks Nationalisation Phase with a growth phase • Nationalisation of Major Commercial Bank • 1969.

50% of which to weaker section 17 ...Various developments after nationalization in 1969 • Lead Bank Scheme: 336 districts. service area concept. SRTO. compilation of data.total O/s should be 1/3 . promote all round development • Priority Credit: Neglected sector.these were raised to 40%.. regional level.. contiguity of districts • Lead bank responsibility as leader.. state..Agl. small business. District committees. \ • 1974: started.1980 • 1985. Retail traders. 17% agl.. 1979. SSI. major scheduled banks. banks could do that in 1981……public sector • 1978: private sector . lead role.allocation based on size. adequacy of resources. liaison. self employed.

. 16K branches • DIR: 1972. today 90. subsidy.after mergers. 2000 to 33000 –1970 to 2010 (1st 10 yrs-8 times) • Total 8000 to 84000 • Scheduled commercial bank figures • RRB: 1976 –Regional Rural Banks Act sponsored by PSB.. Contd. BPL. • Branch Expansion: Focus in rural/unbanked area.. 1% of last year credit 18 . 2005 –200 RRBs. 4% int.

Phases of banking Growth In India • Banking in pre Independence Era • Banking Growth in post Independence Era • Banks Nationalisation Phases • Diversification of Banking Operations 19 .

credit extension lead to bad effect on quality of assets. • By creating subsidiaries.. changes in organizational structure 20 .1985. today. bullion. fee based income is a major area. Housing L. Diversification of banking activities • Banking operations: expansion of branches. Investment B. Merchant B. Venture CF. Increase in NPA. insurance. Cr Card.. profitability effected …so RBI allowed…new areas…Mutual F. Factoring etc.

several economic reforms in banking sector as economy faced greater challenges • Based on Narasinmham committee. efficiency. less NPA (?).5% • Setting up a board for financial supervision. SLR 4%. greater autonomy to banks • Private sector banks • These brought competition. prudential norms improvements 21 . Banking sector Reforms: Post liberalization Era • 1991. 21. several reforms to bring efficiency: • CAR • Reduction in CRR.

Narasimham. 22 . • The Narasimham Committee I • Recommendations can be shortly described as following: • Reduction in Statutory Liquidity Ratio • Reduction in Cash Reserve Ratio • Interest Rate in CRR balances • Redefining the priority sector lending • Deregulation of the interest rates to some extent • Asset classification and defining the Non-Performing Assets • Improve transparency in the banking system • Tribunals for recovery of loans • Tackling doubtful debts • Restructuring the banks • Allow entry of the new private banks and foreign banks with more liberal RBI policies but should meet the same requirements as Indian banks do • A Capital Adequacy Ratio of 8 % • Public Sector banks running profitably should be allowed to have access to Capita Markets • Setting up of Assets Reconstruction Fund • Many of the recommendations of the committee were implemented but the changing global scenario necessitated the need for setting up another committee again headed by Mr. 1st phase • NARASIMHAM COMMITTEE RECOMMENDATIONS • The Narasimham Committee was basically set up to bring about some banking sector reforms and to provide recommendations to improve the efficiency and productivity of financial institutions in India.

agriculture • More autonomy and flexibility in management of Public sector banks • Reviewing of function of boards and management • CAR to be raised to 10% • Laying down and prudential and disclosure norms and sound procedures for more transparency • Integration of NBFC lending into financial system • Revamping Public sector banks through computerization. training. relationship banking and reviewing recruitment. remuneration policies • Abolishing Banking Service recruitment board • Professionalizing and depoliticizing of bank boards 23 . small local banks confined to states or clusters serving local trade. 2nd phase • The Narasimham Committee II • Concept of Narrow banking where weak banks before closure should be allowed a chance to survive by investing only in Risk free and safe Government Securities • Restructuring of banking institutions like2-3 Indian banks should be given international character.

int. DD. • Secondary: services like locker. advisory 24 . payment interval/installments. LC/guarantee. Banks and its Function • Banks as a financial institution that takes deposits for the purpose of lending/or investment and makes provision of payment services • Primary Function: deposit acceptance and lending wrt purpose. custody.

III • CAR. 2009: Main Proposals of the Raghuram Rajan Committee .. ? • Post office / Bandhan • Basel I. These are…. II. 25 . Risk weightage • Narrow/shadow/NBFC/Ponzi • Banks/Insurance • Committee on Financial Sector Reforms.

2. 3. 26 . A coordinated process to protect consumer interests as well as raise literacy levels. through prompt corrective action. 5. overlaps. silos. addressing both the environment in which they operate. while allowing the innovation needed to spur growth.1. as well as the way they tackle risks. Better coordination between regulators so that systemic risks are recognized early and tackled in a coordinated way. A better risk management process for regulators and the regulated. and gaps. Better frameworks for reducing the level of financial risk—for example. 4. A more streamlined regulatory architecture that reduces regulatory costs.

? • Commercial/wholesale bank • Investment/merchant • Private banking/private banks • Retail/corporate banking • Fund based/Non fund based products • Treasury/cash/forex • Asset/liability management • Rural/Agriculture banking 27 .

.b/s .understanding…Bank….

00% .58% 29 Total 100. Comparison of Tata Steel and ICICI Bank Liability Sl No Particulars Tata Steel ICICI Bank 1 Equity 11.57% 2.52% 0.26% 2.96% Current Liabilities and 5 Provisions 12.75% Other 4 Liabilities 3.47% 82.37% Reserves and 2 Surplus 39.35% 3 Loans 33.18% 11.00% 100.

30 . Analysis Liability Side… • In Bank : Equity and reserve component is much less than that of a manufacturing company . the risk of bank is also higher . • If the financial leverage is higher . • Financial leverage is significantly higher in case of a bank compared to that of a manufacturing company . • In Bank : TOL is higher.

29% 5.44% 1.95% Misc.03% 2 Investment 7.00% .15% Total 31 100.expendi ture not 4 written off 0.00% 100.88% Current 3 Assets 68. Comparison of Tata Steel and ICICI Bank Asset Sl No Particulars Tata Steel ICICI Bank Net Fixed 1 Assets 23.65% 65.62% 27.

Analysis Asset Side… • Bank: Fixed asset part is significantly lower compared to that of the manufacturing company . 32 . • Bank : Current asset in the form of loans and advances are significantly higher compared to that of the manufacturing company . • Bank’s assets are financial where price call can be much faster. • Bank : Financial Investment is also higher compared to that of manufacturing company .

we find that a bank is a significantly high risk entity . • Bank’s must operate within the risk . • The aim is to reduce the risk within this structural frame work of high leverage. • How it is to be achieved ? 33 . How to reduce risk ?? • From the composition . – Higher TOL/TNW. – Financial Asset on the asset side .

• From this it earns income and then pay the expenses . • Then the surplus is paid to the lender of loan and equity capital . Banking Business • Like any other business. • It borrows money in the form of equity and loan. • Then it invest in the form of fixed asset as little as possible and then it invest in the loan and investment . 34 . Banks also do not have any fund on its own.

35 . Banking Business.How to reduce risk • Banks maintain minimum amount of capital to have repayment flexibility . • Banks are provided liquidity support from the central bank in time of necessity . • Banks should maintain accounts so that major loss should not happen within a short period of time. • Banks should operate in such a way that many depositors should not come at a single point of time to withdraw the fund from the bank.

Structure of Banking system • Apex level institution • Development FI • Commercial Bank • NBFC • Cooperative banks 36 .

promoted at national level for industrial growth –large projects.• Apex level institution _ promoted by RBI as its arm to promote sectoral growth of economy. UTI. Implementation of policies of RBi. –NABARD. EXIM bank • All India D FI. IDBI. at state level these will have state finance corp. NHB. SIDBI. ICICI. Act as coordinator as well as monitor agency between banks. Now they have changed operational strategies and diversified. state 37 industries development . FIs. IFCI. credit allocation etc.

Structure of Banking system • Apex level institution • Development FI • Commercial Bank • NBFC • Cooperative banks 38 .

whose name is included in the 2nd schedule of RBI Act 1934 • Satisfies the condition laid in Sec 42(6). paid up capital above 5 lacs.• Commercial bank. RRB 39 . Nationalised. private sector. insurance upto 1 lac • Classified as : public sector.classified into schedule and non schedule banks • Sec 2(e) of RBI Act. Foreign Banks • Public Sector: SBI. affairs in the interest of depositors.

2015 -34 banks 40 .• Private Sector: old (15) prior to 1994. RBI decides. but follow SLR.1994. credit allocation norms. follow prudential norms from beginning. CAR Min 10% RWA. RBI allowed new private banks. efficiency with new guidelines • Minimum capital 300 crore. objective. till 1991 18 banks. latest IT. FDI 74%.competition.4. no subsidiary in three years • Foreign banks. 25% branches in rural/semi urban. new (11) • 1. free recruitment/remuneration. Parent office in foreign.

Structure of Banking system • Apex level institution • Development FI • Commercial Bank • NBFC • Cooperative banks 41 .

Usually three tier structure.. lease. income recognition. based on the concept to provide finance to members as a major source. very few are allowed to accept deposits with different norms like CAR. Asset classification. issue of non convertible debentures • Cooperative banks: started with the cooperative movements in 1904. provisions. farmer service societies 17p 42 . Contd. but cannot deal in negotiable instruments as they are not covered under negotiable instrument act. exposure norms • Activities include. HP.Apex level. district level. • NBFC: deal in Financial services.

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