Description
function of commercial bank, services provided by banks, challenges before the bank, capital adequacy standards, difference between basel 1 and basel 2.
Banking System In India
Presented by : Sushil Sharma (2009mb08)
Content
1. What is a Bank.
2. History of banking in India. 3. Function of Commercial Bank.
4. Services Provided by the Bank.
5. Development banks. 6. Challenges Before Indian Banks. 7. Capital Adequacy Standards. 8. Difference Between Basel I & Basel II. 9. References.
What is a Bank
? Bank is a financial intermediary that accept deposits and
channel those deposits in to lending activities. ? A bank is an institution that deals in money and its substitutes and provides other financial services. ? A bank connect customer with capital deficit with customer with capital surplus. ? Commercial banking system in India consisted of 218 scheduled commercial bank.( including foreign bank) as on March 2006. Of the scheduled commercial bank, 161 are in public sector of which 133 are RRB’s & these account for about 75.2% of the deposit of all scheduled commercial bank
History of banking in India
? In order to have more control over bank 14 large
commercial bank whose reserves were more than Rs. 50 cr. each were nationalized on 19th July 1969. ? On April 15 , 1980. Those six private sector banks whose reserves were more than Rs. 200 cr. each were nationalised . ? On 4th Sept 1993 the Govt merged the New bank of India with PNB and as a result of this the total no. of Nationalised Bank got reduced from 20 to 19.
Function of Commercial Bank
1. Primary functions a) Accepting deposits; b) Granting loans and advances 2.Secondary functions including agency functions. a) Issuing letters of credit, travelers cheques, circular notes etc. b) Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers; c) Providing customers with facilities of foreign exchange. d) Transferring money from one place to another; and from one branch to another branch of the bank. e) Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc. f) Collecting and supplying business information; g) Issuing demand drafts and pay orders; and, h) Providing reports on the credit worthiness of customers.
Credit Creation
?
Difference between Primary and Secondary Functions of Commercial Banks Primary Function
? These are the main activities
Secondary Function
? These are the secondary
of the bank. ? These are the main sources income of the bank. ? These are obligatory on the part of bank to perform.
activities of the bank. ? These are not the main sources of income of the banks. ? These are not obligatory on the part of bank to perform. But generally all commercial banks perform these activities
Mode of Short Term Financial Assistance
? Cash Credit: bank allows the borrower to draw amounts upto a
specified limit. The amount is credited to the account of the customer. The customer can withdraw this amount as and when he requires. Interest is charged on the amount actually withdrawn.
? Overdraft: A customer who has a current account with the bank is
allowed to withdraw more than the amount of credit balance in his account.
? Discounting of Bills: making payment of the amount before the
due date of the bills after deducting a certain rate of discount.The party gets the funds without waiting for the date of maturity of the bills
Services Provided by the Bank
Issuing of L/C, Travelers cheques. Transferring money from one place to other by RTGS/NEFT. 3. Discounting of bills. 4. Providing facilities for trading in shares by Demat A/C or ASBA. 5. Cash Management services. 6. Corresponding Bank Services. 7. Providing Pre shipment and Post shipment
1. 2.
Credit facilities. 8. Market Maker in Govt. Securities. 9. Forex & Treasury Services. 10. Bancaasurance.
Development bank
? Development bank provide long term financing
facilities to the corporations. ? To promote institute engaged in industrial development. ? Provide financial assistance to the small scale industrial sector ? Development banks for loans for development activities housing, commercial, agricultural etc. e.g. IDBI, SIDBI, IFCI, ICICI, IIBIL, SIDC, NABARD & HUDCO.
International Banking
? Correspondent Banking : When a bank provides
services on behalf of another bank. A correspondent bank can conduct business transactions, accept deposits and gather documents on behalf of the other bank. They are more likely to be used to conduct business in foreign countries, and act as a domestic bank's agent abroad. ? Offshore Banking: An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. ? Universal Banking: It is a combination of commercial banking, investment banking and other activities like Insurances. It is one stop financial supermarket.
Challenges Before Indian Banks
1. Implementation of Basel II. 2. Technology: IT can help in reducing the transaction cost for
3. 4. 5. 6. ? ? ?
the Banks and transaction time for the customers . Interconnectivity of branches - Core Banking Solutions RTGS NDS OM. Consolidation of Banking Sector. Retail Banking: Rural banking. Corporate Governance. Reduction in NPAs: An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. 90 Days Norm April, 2004. Provisions for NPA. SARFAESI Act 2002.
Challenges Before Indian Banks
7. Risk Management systems to be put in place. ? Asset Liability Management Framework : ALM is
a comprehensive and dynamic framework for measuring, monitoring and managing the market risk of a bank ? It has been introduced in Indian Banking industry w.e.f. 1st April, 1999. ? GAP Analysis: The gap is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) in various time buckets.
Capital Adequacy Standards
? Bank capital adequacy refer to the amount of equity
capital and other securities a bank holds as reserves against risky assets to reduce the probability of a bank failure. ? Basel I :
? Basel II: is based on three mutually reinforcing pillars.
1. Minimum capital requirement. 2. Supervisory review process and 3. Effective use of market discipline.
Difference Between Basel I & Basel II
Basel I
? The 8% CAR assigned to risk-
Basel II
? Minimum 8% capital risk is
weighted assets was unchanging regardless of whether the degree of CREDIT risk fluctuated throughout the business cycle
? And regardless of the type of
risks in which banks were engaged.
calculated on the sum of the banks credit risk, market risk and operational risk. ? Credit risk- Standardized approach , IRB and securitization approach. ? Operational Risk- Applying a fixed % age to gross Income from operation. ? Market Risk- Determind by marking to market of bank trading account.
References:
? International Financial Management by Eun &
Resnick. ? Pratiyogita Darpan, 2009-10. ? www.allbankingsolutions.com.
doc_178045948.pptx
function of commercial bank, services provided by banks, challenges before the bank, capital adequacy standards, difference between basel 1 and basel 2.
Banking System In India
Presented by : Sushil Sharma (2009mb08)
Content
1. What is a Bank.
2. History of banking in India. 3. Function of Commercial Bank.
4. Services Provided by the Bank.
5. Development banks. 6. Challenges Before Indian Banks. 7. Capital Adequacy Standards. 8. Difference Between Basel I & Basel II. 9. References.
What is a Bank
? Bank is a financial intermediary that accept deposits and
channel those deposits in to lending activities. ? A bank is an institution that deals in money and its substitutes and provides other financial services. ? A bank connect customer with capital deficit with customer with capital surplus. ? Commercial banking system in India consisted of 218 scheduled commercial bank.( including foreign bank) as on March 2006. Of the scheduled commercial bank, 161 are in public sector of which 133 are RRB’s & these account for about 75.2% of the deposit of all scheduled commercial bank
History of banking in India
? In order to have more control over bank 14 large
commercial bank whose reserves were more than Rs. 50 cr. each were nationalized on 19th July 1969. ? On April 15 , 1980. Those six private sector banks whose reserves were more than Rs. 200 cr. each were nationalised . ? On 4th Sept 1993 the Govt merged the New bank of India with PNB and as a result of this the total no. of Nationalised Bank got reduced from 20 to 19.
Function of Commercial Bank
1. Primary functions a) Accepting deposits; b) Granting loans and advances 2.Secondary functions including agency functions. a) Issuing letters of credit, travelers cheques, circular notes etc. b) Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers; c) Providing customers with facilities of foreign exchange. d) Transferring money from one place to another; and from one branch to another branch of the bank. e) Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc. f) Collecting and supplying business information; g) Issuing demand drafts and pay orders; and, h) Providing reports on the credit worthiness of customers.
Credit Creation
?
Difference between Primary and Secondary Functions of Commercial Banks Primary Function
? These are the main activities
Secondary Function
? These are the secondary
of the bank. ? These are the main sources income of the bank. ? These are obligatory on the part of bank to perform.
activities of the bank. ? These are not the main sources of income of the banks. ? These are not obligatory on the part of bank to perform. But generally all commercial banks perform these activities
Mode of Short Term Financial Assistance
? Cash Credit: bank allows the borrower to draw amounts upto a
specified limit. The amount is credited to the account of the customer. The customer can withdraw this amount as and when he requires. Interest is charged on the amount actually withdrawn.
? Overdraft: A customer who has a current account with the bank is
allowed to withdraw more than the amount of credit balance in his account.
? Discounting of Bills: making payment of the amount before the
due date of the bills after deducting a certain rate of discount.The party gets the funds without waiting for the date of maturity of the bills
Services Provided by the Bank
Issuing of L/C, Travelers cheques. Transferring money from one place to other by RTGS/NEFT. 3. Discounting of bills. 4. Providing facilities for trading in shares by Demat A/C or ASBA. 5. Cash Management services. 6. Corresponding Bank Services. 7. Providing Pre shipment and Post shipment
1. 2.
Credit facilities. 8. Market Maker in Govt. Securities. 9. Forex & Treasury Services. 10. Bancaasurance.
Development bank
? Development bank provide long term financing
facilities to the corporations. ? To promote institute engaged in industrial development. ? Provide financial assistance to the small scale industrial sector ? Development banks for loans for development activities housing, commercial, agricultural etc. e.g. IDBI, SIDBI, IFCI, ICICI, IIBIL, SIDC, NABARD & HUDCO.
International Banking
? Correspondent Banking : When a bank provides
services on behalf of another bank. A correspondent bank can conduct business transactions, accept deposits and gather documents on behalf of the other bank. They are more likely to be used to conduct business in foreign countries, and act as a domestic bank's agent abroad. ? Offshore Banking: An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. ? Universal Banking: It is a combination of commercial banking, investment banking and other activities like Insurances. It is one stop financial supermarket.
Challenges Before Indian Banks
1. Implementation of Basel II. 2. Technology: IT can help in reducing the transaction cost for
3. 4. 5. 6. ? ? ?
the Banks and transaction time for the customers . Interconnectivity of branches - Core Banking Solutions RTGS NDS OM. Consolidation of Banking Sector. Retail Banking: Rural banking. Corporate Governance. Reduction in NPAs: An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. 90 Days Norm April, 2004. Provisions for NPA. SARFAESI Act 2002.
Challenges Before Indian Banks
7. Risk Management systems to be put in place. ? Asset Liability Management Framework : ALM is
a comprehensive and dynamic framework for measuring, monitoring and managing the market risk of a bank ? It has been introduced in Indian Banking industry w.e.f. 1st April, 1999. ? GAP Analysis: The gap is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) in various time buckets.
Capital Adequacy Standards
? Bank capital adequacy refer to the amount of equity
capital and other securities a bank holds as reserves against risky assets to reduce the probability of a bank failure. ? Basel I :
? Basel II: is based on three mutually reinforcing pillars.
1. Minimum capital requirement. 2. Supervisory review process and 3. Effective use of market discipline.
Difference Between Basel I & Basel II
Basel I
? The 8% CAR assigned to risk-
Basel II
? Minimum 8% capital risk is
weighted assets was unchanging regardless of whether the degree of CREDIT risk fluctuated throughout the business cycle
? And regardless of the type of
risks in which banks were engaged.
calculated on the sum of the banks credit risk, market risk and operational risk. ? Credit risk- Standardized approach , IRB and securitization approach. ? Operational Risk- Applying a fixed % age to gross Income from operation. ? Market Risk- Determind by marking to market of bank trading account.
References:
? International Financial Management by Eun &
Resnick. ? Pratiyogita Darpan, 2009-10. ? www.allbankingsolutions.com.
doc_178045948.pptx