BANKING & WEALTH MANAGEMENT

Evolution of Banking

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the
Reserve Bank of India Act, 1934. The Indian Banking Regulation Act 1949 was formulated to govern
the financial sector.
In 1921 the presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in
1921 to form the Imperial Bank of India. During the First 5 year plan in 1951, an act was passed in
Parliament in May 1955 nationalizing the Imperial Bank and the State Bank of India was constituted
on 1 July 1955
During the period 1906-1911, several Commercial banks such as BOI, Central Bank of India, BoB,
Bank of Mysore etc were established which were all Joint Stock Banks

Definition of a Bank

Indian Banking Regulation Act (1949) defines Banking as the Acceptance of money for the purpose of
lending or investment, from deposits received from the public, repayable on demand or otherwise
withdrawable by cheques, drafts or order to otherwise (Standing Instructions, ECS).

Nationalization of Banks
First only State Bank of India (SBI) was nationalized in July 1955 under the SBI Act of 1955.
Nationalization of Seven State Banks of India (formed subsidiary) took place on 19th July, 1960.

In 1969, Mrs. Indira Gandhi the then prime minister nationalized 14 banks then. These banks were
mostly owned by businessmen and even managed by them.

 Central Bank of India

 Bank of Maharashtra
 Dena Bank
 Punjab National Bank
 Syndicate Bank
 Canara Bank
 Indian Bank
 Indian Overseas Bank
 Bank of Baroda
 Union Bank
 Allahabad Bank
 United Bank of India
 UCO Bank
 Bank of India

1980 : Nationalisation of seven more banks with deposits over 200 crores.

Problems: Nationalized banks had job guarantee so employee efficiency very low, indiscipline and
high absenteeism, trade union problems etc. Compare with present banks

TYPE OF BANKS AND THEIR FUNCTIONS

 1. Central Bank
2. State Bank of India
3. Scheduled and Non Scheduled Banks
4. Co operative Banking
5. Retail Banking
6. Private Banking
7. Investment Banking
8. Corporate Banking

1. CENTRAL BANK: RBI

1. A Central bank has the sole right of note issuance i.e. legal tender currency
2. It should be the channel, and the sole channel for the output and intake of legal tender currency.
3. It should be the holder of all the government balances, and the holder of all the reserves of the
other banks and branches of banks in the country.
4. It should be the agent , so to speak, through which the financial operations, at home and abroad,
of the government would be performed.
5. Based on its Monetary Policy It should further be the duty of the central bank to effect so far as it
could , suitable contraction and suitable expansion on money supply, aiming generally at stability,
bby using the following tools: OMO- Open Market Operation, sterilization, CRR, SLR, Bank Rate etc-
(Discussed in class, notes given)
6. When necessary, it should be the ultimate source from which emergency credit might be obtained
in the form of rediscounting approved bills, or advances on approved short term securities or
government papers. Lender of last resort/ Banker to Banks
7. It does not deal directly with the public. It indirectly helps agriculture, industry by augmenting
resources of other banks, channeled through agencies such NABARD, SIDBI, NHB ie priority sector
targets
8. Maintains the foreign exchange reserves and gold reserves for the country (Discussed in class-
notes given)
9. Clearing House of Commercial Banks (Discussed in class-notes given)
10. Rediscounting bills for scheduled banks (Discussed in class-notes given)
11. Moral Suasion- Mild persuasion to banks and financial institutions to follow RBI requirements
based on market situations

2. STATE BANK OF INDIA

The State Bank of India acts as an agent of the Reserve Bank of India and performs the following
functions:
(1) Borrows money:- The Bank borrows money from the public by accepting deposits such as current
account deposits, fixed deposits and demand deposits.
(2) Lends money:- It lends money to merchants , industries and manufacturers. It also lends to
farmers and co-operative institutions. It lends mostly on the security of easily realizable commodities
like rice, wheat, cotton, oil-seeds, cloth, gold and government securities. The Bank can lend against
agricultural bills upto a maximum period of fifteen months and incase of other bills upto a maximum
period of six months.
(3) Banker’s Bank:-The State Bank of India acts as the banker’s bank. In discharging this
responsibility, the bank provides loans to commercial bank when required and also rediscount their
bill.
(4) It also acts as the clearing house of the commercial bank where RBI doesnot have its branches
(CLEARING FUNCTIONS DISCUSSED IN CLASS). SBI and its Associate banks are responsible for
clearing: SBBJ – State Bank of Bikaner & Jaipur, SBH – State Bank of Hyderabad, SBM – State Bank of
Mysore, SBIN – State Bank of Indore, SBP – State Bank of Patiala, SBT – State Bank of Travancore.
(4) Government’s Bank:- The State Bank of India also acts as the agent of the Reserve Bank of India.
As an agent, the State Bank of India maintains the treasuries of the State Government. The Bank also
manages the debts (buying or selling of Bonds and Treasury Bills) floated by the State Governments.
(5) Remittance:- The State Bank of India facilitates remittance of money from one place to another. It
also helps in the transfer on the funds of the State and Central Government.
(6) Functions as Central Bank:- The State Bank of India performs the functions of a Central Bank
where RBI does not have its presence.
(7) Subsidiary service functions:- The State Bank performs various subsidiary services also. It collects
checks, drafts, bill of exchange, dividends interest, salaries and pensions on behalf of its customers..
It receives valuables and documents for safe custody and maintains safe deposit vaults

3. SCHEDULED AND NON SCHEDULED BANKS

In the RBI ACT OF 1934, all banks listed in the second schedule is known as Scheduled banks
All Scheduled bank operations are under strict surveillance of RBI. All nationalised banks, most
private sector banks, foreign banks are scheduled. Most cooperative banks are non- scheduled (not
subjected to strict financial discipline).
Advantages of scheduled banks:
1. RBI can rediscount the bills already discounted by them
2.Their drafts, bank guarantee, letter of credit accepted in all government offices
3.RBI acts as lender of last resort
4. All government accounts and transaction get routed through them
5. More account holders and lesser interest payment towards deposits as compared to non
scheduled banks

4. COOPERATIVE BANKING
Definition by Paul Lambert: It is an enterprise formed and directed by an association of users,
applying within itself the rules of democracy and directly intended to serve both its own members
and the community as a whole. It is a voluntary concern with equitable participation and control
among all concerned.
1. It is organized by those who themselves need credit
2. Runs as a democracy: Run by Board of Director elected on the basis of one vote per member
Cosmos, Saraswat, Suvarna Sahakari etc

1. Rural Co-operative banks: predominantly agriculture credit banks-short, medium and long term
to agriculture, handicraft, cottage industries. Issues: Recovery, problem of valuing land, livestock,
perishable agricultural commodities, improper title of property as security, limited resources and
fund shortage, high Non performing Assets, chances of financial mis-management by the
management itself (corruption).

2. Urban Co-operative banks: Formed for meeting the credit requirement of the urban lower middle
class which larger banks do not wish to lend due to high cost of advancing and recovery. Nor do
these people have large incomes or large assets to offer as security. Membership open to traders,
merchant, professionals etc who have to contribute to share capital. They have their own funds
(paid up share capital) and borrowed funds (deposits from public and borrowing from other banks)
5. RETAIL BANKING

Basic Functions
1. Acceptance of Deposits:
Classification of Deposits:
Demand Deposits/Current Deposits-Repayable on demand-Savings accounts for individuals, Current
Accounts for businesses (CASA)
Fixed Deposits/Time Deposits
The deposit is placed for a fix time period and fixed interest rate/ instructions needed for premature
withdrawal. In exchange for the lack of liquidity, banks offer a higher yield on time deposits than
they offer on regular savings accounts.

Interest calculation for premature withdrawal of deposit and savings account interest calculation
explained in class

2. Loans & Advances: Accepts funds so that they can lend out credit to customers for consumption
towards cars, houses, consumer goods, construction etc

3. Use of Cheques: Since the deposits with banks are withdrawable by cheques it elevates bank
deposits to the position of money
n
4. Banking as a part of the Financial Services industry
a. Acting as an Intermediary: Collects Savings from those who have them and give to those who need
them.
b. Distribution of third party products such as mutual funds, insurance, RBI bonds etc
c. General Utility services such as Bill payments, safety lockers, tax payments, issuing travellers’
cheques etc
d. Non Traditional financial services in the recent times: Wealth Management and Relationship
Management Services, selling gold coins

Major Income Streams for Retail Banks

BANKING SPREAD: The bank spread is the difference between the bank's cost of funds, in terms of
interest paid to depositors, and the rate of interest the bank charges to debtors on bank loans.
Interest income on term loans,home loans, personal loans , credit cards, overdrafts, cash credit. (Net
Interest Income)
FEE BASED INCOMES: Third party incomes as Distributors of mutual funds, life insurance, general
Insurance i.e. mediclaims & Property insurance, RBI Bonds, equity trading brokerage , portfolio
management schemes, merchant outlets: swipe machines, issuing bank guarantees, letter of credit
etc
FOREIGN EXCHANGE INCOMES:
1. Conversion charges on currency notes OTC
2. Conversion charges on Inward and Outward fund remittances
3. Converting foreign currency for exporters and importers
4. Foreign Currency loans to Exporters / Importers via Corporate Banking
5. Multi currency accounts (2007) for exporters with inter project fund transferability in any
currency and country
INVESTMENT INCOME

Income from investment in interbank call money market, Liquid plus & ultra short term mutual
funds, government securities, Treasury bills, Certificate of Deposits, commercial papers

Negotiable Instruments
Transactions related to NI are governed by the negotiable instruments act 1881. Section 13 defines “
a negotiable instrument means a promissory payable either to order or bearer”
Bills of exchange/cheques/drafts/ certificate of deposits-unsecured borrowing by scheduled banks
for a period ranging 3 months to 1 yr by issuing promissory notes/ Accommodation bill- it is a bill of
exchange where a reputed third party is providing a guarantee towards repayment as a favor
without any compensation for the same. This third party remains liable till the bill amount is repaid
to the bank

BANK’S ASSETS: Loans and Bank’s Investments BANK’S LIABILITIES: Savings account, current
account, fixed deposits and bank borrowings from other sources

KYC-Know your Customer or Client/ AML- Placement, Layering and Integration (Please refer to
notes given in class)

Credit Creation of Banks: Loans Created Deposit

Primary deposits: hard cash, cheque, drafts etc, total supply of money does not increase from that
when people come and open the account with these.
When banks loan out these primary deposits Derivative deposits are created which add to the
money supply. Banks advance loans to Brokers, financial institutions, individuals etc and Discount Bill
of exchange, promissory notes etc thereby increasing credit money supply.
The loan amounts are credited to the respective borrower’s accounts and they are authorised to
draw cheques up to the sanctioned amounts. Therefore debt gets converted to money. Therefore
the deposits of the respective borrowers bank increases. Incase the borrower is an account holder in
the same bank that has advanced the loan; the deposits of the same bank will increase.
Where the bank had lent out via the cheque route, the borrower will credit the cheque into his
respective bank account, whether in a different bank or the same one. This will increase that banks
deposit base by the equivalent amount. Thus money available for credit increases.
Whenever any bank purchases an income earning asset, it credits that amount to the account of the
seller, thereby indirectly creating a new deposit, which the respective borrower/seller can withdraw
using cheques. Thus banks convert debt into money

Balance Sheet approach:

Let us assume a Deposit of INR 2000, of which the bank has to keep 20% as cash reserves and may
lend the rest

Step 1: Bank A
Liability Asset
New Dep: Rs 2000 New cash: 2000
Total: Liab: 2000 Asset: 2000

Step 2: bank A
Liability Asset
Deposit: 2000 Cash: 400
Loan to X: 1600
Total: Liab: 2000 Asset: 2000

Step 3 : Bank B (X is an Account holder)

Liability Asset
New Dep: 1600 Cash in hand: 1600
Total: Liab: 1600 Asset: 1600

Step 4: bank B
Liability Asset
Deposit:
1600 Cash in hand:320
Loan to Y: 1280
Total Liability: 1600 Total Asset: 1600

Step 5: Bank C (Y is an Account holder)

Liability Asset

New Dep: 1280 Cash in hand: 1280

Total: Liab: 1280 Asset: 1280

Credit creation multiplier (K)

K (Deposit multiplier)=1/ r , where r=percentage of deposit to be kept as liquid money under the
Cash Reserve Ratio requirement , which is currently at 5.75%

Therefore K=1/5.75% which is around 18 times. Thus Credit creation can take place up to 20 times
the initial deposit amount.

ROLES AND FUNCTIONS OF DIFFERENT DEPARTMENTS

1. MIHU: May I help you:

1. Primary screening and addressing customers’ requirements when they enter the branch and then
directing them to the respective departments as per their queries and demands.
2. Judge the potential of customers for cross sale of banking products based on their perceived net
worth and thereby directing them to Branch Banking or Priority banking for either starting a new
relationship or deepening existing relationship.
3. Divert customers to Alternate Delivery Channels (ADC) such as Phone Banking and Internet
Banking to save the time of Service executives.
4. Assist in resolving very basic service queries

2. CUSTOMER SERVICE: Following services are performed by them

1. Operational aspect of physically opening customer Accounts post checking the accuracy of
all documents and resolution of any discrepancy . Marking them according to the customer
type as Special Category Client or high risk client in case he’s a politician, police official etc
who has enough influence to damage the bank’s reputation in case of any customer issue.
2. Ensuring that all KYC norms (Address proof, photo ID, photograph etc) are followed and
collected during account opening
 3. Follow AML guidelines diligently. Track accounts with heavy inflow/outflow and report to
the relevant authorities to safeguard the interest of the bank. Raise STRs i.e. Suspicious
Transaction Report based on these heavy irregular fund flows
4. Keep a tab on clients whose cash flows highly exceed their mentioned profession or
business.
5. Resolve queries pertaining to Credit cards, personal loans and home loans, assisting clients
in their payments, change of EMI structure or part or full foreclosure and services related to
accounts.
6. Responsible for service and resolution of queries pertaining to products such as interest
calculation on deposits, placing fresh deposits and renewing the ones which have maturing
selecting the optimum interest rates and time periods as per client specifications
7. Assist the customers in inward and outward remittances/ money transfers
8. Generating leads or Cross Sale of investments and other banking products by selling some of
the products themselves like credit cards, deposits which are low involvement product or
else directing the customer to the Relationship Manager for the respective product or
department by generating ‘warm leads’.
9. All services pertaining to Locker opening, maintenance and collecting the charges are their
responsibility
10. Maintaining Branch inventories of credit cards, debit cards, Sealed passwords for Accounts,
internet banking, phone banking, account opening kits and cards. These are all held by them
confidentially in fire proof lockers etc
11. Ensuring all transactions, documentation, accounts opening formalities, service standards
are followed as per rules laid down by group compliance, country risk and reputation
analysis before opening Non Resident accounts (CRRT-Country Risk and Reputational Table),
which has a list of countries which are high risk for money laundering, terrorism financing
etc. They are responsible for meeting branch audit requirements

3. TELLERS (CASHIERS)
1. Receipt and payment of cash over the counter and following certain security norms in case the
amounts are very large i.e. letter from customer stating source of funds or its usage/Pan Card
copy etc
2. Account to account fund transfers within the same bank/ branch.
3. Safeguard interest of customers from fraudulent practices by identifying signature mismatches
and forgery on cheques, since they have a specimen signature on the records
4. Identify and destroy counterfeit currency
5. Encashment and also issuance of traveller’s cheques, gift cheques, and demand drafts.
6. RTGS-real Time Gross Settlement-/ NEFT-National Electronic Fund transfer
7. Maintenance of Cash in ATMs
8. Exchanging foreign currency OTC (Over the Counter)
9. Acceptance and Clearing of cheques

RTGS: The acronym 'RTGS' stands for Real Time Gross Settlement. RTGS system is a funds
transfer mechanism where transfer of money takes place from one bank to another on a 'real
time' and on 'gross' basis. This is the fastest possible money transfer system through the banking
channel. Settlement in 'real time' means payment transaction is not subjected to any waiting
 period. The transactions are settled as soon as they are processed. 'Gross settlement' means the
transaction is settled on one to one basis without bunching with any other transaction.
NEFT settlement takes place 6 times a day during the week days (9.00 am, 11.00 am, 12.00 noon.
13.00 hours, 15.00 hours and 17.00 hours) and 3 times during Saturdays (9.00 am, 11.00 am and
12.00 noon). Any transaction initiated after a designated settlement time would have to wait till
the next designated settlement time. Contrary to this, in RTGS, transactions are processed
continuously throughout the RTGS business hours. The minimum amount to be remitted through
RTGS is Rs.1 lakh. There is no upper ceiling for RTGS transactions. No minimum or maximum
stipulation has been fixed for EFT and NEFT transactions.

4. BRANCH BANKING SEGMENT

HSBC- Power Vantage/ Citibank-Citi Blue
Mid market and Mass market Customers. The account opening cheques range from Rs.5000 for
Mass market, while 1 Lac for Mid market, especially in multinationals
Relationship Managers and Financial Consultants are assigned to customers to cross-sell banking
products and offer wealth management services. Apart from the other products such as retail assets,
credit cards etc, the focus is to primarily to sell Life Insurance with a secondary focus on mutual
funds. Commissions on basic insurance products ranged from 15% to 40% on the first years premium
as against 2.25% in mutual funds when Entry Load was prevalent i.e. ( 5 lac of Premium in insurance
@ 40% commission gives a revenue of INR 200,000 , while approx INR 90,00,000 of MF sales gave
the similar revenues)
Even now with entry load ban on MFs upfront charges and reduced charges on insurance, even then
insurance is much more profitable. Since Branch banking is a Volumes game and not a Value
proposition the products aggressively sold are all very high revenue products, so that large
percentage of income may be derived from the smaller amounts sold per customer

5. PRIORITY BANKING

HSBC- Premier/ ABN Amro-Van Gogh Preferred Banking/ Citibank-Citigold/ Standard Chartered-
Priority Circle
Value proposition with account opening amounts ranging from 25 – 30 lacs
1. Experienced Relationship Managers and Customer Service Managers assigned to fewer groups of
customers for personalised and specialised services
2. Wealth Management Services to customers, consolidating previous, existing and fresh
investments spanning equity, debt and sectoral mutual funds, stocks, bonds, gold, deposits,
commodities, insurance, foreign investments, real estate etc. Thereby providing customised
investment solutions which are extensively tracked, rebalanced and allocated according to
customer risk profiling and cash flows
3. High focus on Structured investment products using derivatives etc are designed especially for
these clients
4. Higher Deposit rates are offered, while fees are waived off in mostly all banking transactions and
products
5. Very high limits offered on debit and credit cards with international service facilities included
which are either free or heavily subsidised. All annual charges on cards are waived.
6. Extremely competitive rates are offered on currency conversion, while remittance charges are
mostly waived or discounted
7. Multiple account facilities in different countries offered to High Net worth clients with business
interest across the globe. In one country the priority account minimum balance needs to be
maintained, while in other countries it can be a zero balance account.
8. Interest Rates charged on Home loans and personal loans are at a significant discount to Branch
banking customers, and also with much lesser documentation requirements

6. RELATIONSHIP MANAGEMENT

1. Wealth Management: Financial Planning, Investor risk profiling, Asset allocation & Product
selection, Portfolio tracking & rebalancing
2. Managing incremental cross sale of investments and other banking products
3. Retention of customers, deepen the relationship with constant interaction and ensure
quality service and resolution of queries within given TAT (Turn around time)
4. Acquire new relationships and grow their balances through investments in various products.
Maintain and grow CASA balances.
5. Sales of all categories of Life Insurance products i.e. market linked plans (ULIPs), term
policies and Endowment Plans
6. Equity research, advisory, monitoring and stock trading through the Portfolio Management
Services route
7. Constant reviewing and monitoring customer’s portfolios and detailed financial planning to
address any need gaps using proprietary software. Thereby make changes in the portfolio
based on current market levels and movements debt, equity and commodities side
8. Provide structured products to HNI clients. Most products are designed with inbuilt features
to participate in the derivatives segment and involve aggressive option trading strategies
and positions in Futures, to either enhance profitability or hedge risks
9. Track foreign currency markets to enable Non Resident customers profit from exchange rate
fluctuations
10. Also focus on the corporate relationship segment (company accounts) as an avenue for high
revenue from large company investments, by liaising with the corporate banking channel
11. Ensuring all audit and compliance norms are followed. Cross border investment and
insurance norms have been followed. All investments have to be documented extensively
capturing the minutest of investor/investment details. Anti Money Laundering measures
have to be followed and country specific risk measures have to be taken as per CRRT
(Country Risk Reputational Table) i.e. investments coming from Iraq, Nigeria, Zambia etc
which are of risky nature
 12. Conduct regular market research to review, assess, analyze, report on competitor activities
of other banks and financial institutions ,and capturing changing consumer behavior and
general industry trends

7. RETAIL ASSETS

1 Selling Home loans, car loans and Personal loans to existing and new customers
2. For home loans, liaison with designated lawyers and property valuers to ensure that the
property to be kept as mortgage is secure with clear title, no encumbrances and with
required market valuation for ensuring the security of the loan.
4. Credit managers verify customer income documents, calculate his repayment capacity
and then Sanction loans.
5. The final Disbursal of loan ie. Cheque handed out to borrower, takes place post a clear
legal report of the property papers from lawyers and based on the technical valuation report
by property valuer of the current market value of property
6. Hold marketing events at the bank, companies, societies, clubs, malls, multiplexes etc
sometimes offering concessional interest rates to promote loans.
7. Types of products: Home Loans, Loan against property, Loan against commercial
property, Balance transfer, Top up . Also discuss the detailed process of Sanctioning and
Disbursement of loans (Discussed in details class)

8. RETAIL LIABILITIES
1. Selling CASA: Current accounts and savings accounts
2. Selling Fixed deposits to increase the banks deposit base

9. CUSTOMER ACQUISITIONS TEAM (CAT)

1. Initiating and implementing Marketing efforts for acquiring new accounts by individual sales
efforts, organizing customer meets, seminars & events
2. Procuring databases from various sources for cold calling and selling banking propositions
3. Taking customer references from existing and prospective clients for sourcing more accounts
4. Collecting and completing the required documentation for account opening

10. TRAINING & DEVELOPMENT

1. Ensure all mandatory certifications are completed by the sales and service staff and provide
training for the same
2. Develop Learning & management modules covering a wide range of banking, finance and
investment topics with online tests for getting a formal qualification
3. Extensive training provided on identifying money laundering trails and investments routed
from high risk countries.
4. Provide training on new product launches, changes in bank policies, new technologies,
rebranding and re launching existing products
5. Regular training on investments, insurance and financial planning for customers
 6. Create talent pools by identifying and segregating employees based on various skill sets
ranging from team management, selling skills, knowledge quotient, customer handling
techniques etc by conducting regular workshops
7. Update staff on new legislations, competitor strategies and prevailing market opportunities

11. AUDIT & COMPLIANCE

1. Oversee that all branch operations are conducted based on Group compliance norms and
legalities laid down by external entities such as the central bank, IRDA, AMFI etc
2. Ensure Sales Quality is maintained on all banking product sales. Checking that there is no
wrong selling due to target pressure, forgery of documents while selling banking products,
mismatch of signatures, product not matching the clients risk profile, investment tenure
and age.
3. Conduct regular audit on all investment & insurance sales making sure that cross border
investment norms are maintained (US, Canada Australia etc) Anti Money Laundering
guidelines are followed, CRRT (Country Risk and Reputations Table) countries such as
African countries etc are highlighted, documentation and records are all in order, the Sales
person had all the mandatory licenses and customer interest has been met

12. RESEARCH TEAM

1. Daily updates, mails & messages on market trends and occurrences spread over all investment
types
2. Compile extensive and detailed studies about markets, economics, new & existing funds, equity,
global and local trends, sectors etc.
3. Track and research all mutual funds based over many parameters and compile a ‘White list’ or
‘Choice list’ which streamlines the best mutual funds in every sector and category based on their
research which are recommended by the bank
4. Assist the sales team in closing large investment deals with their value added inputs based on
views and market direction

13. BACK OFFICE OPERATIONS

Back office functions. Issuance of cheque books, debit and credit cards and their respective
passwords, placement and withdrawal of deposits, generating internet & phone banking passwords,
generating account opening kits, bank statement etc

14. COLLECTIONS

Recovery and settlement of bad loans, credit card defaults etc

Customer background checks, field investigation reports and risk management measures such as
verifying customer’s area of residence and whether he stays in a negative area , healthiness of his
prior banking transactions, previous loan repayment records, credit history etc before the bank
authorizes loans or credit cards

RATES GOVERNING BANKS

PLR-PRIME LENDING RATE: RBI: 11-12%/ 5 top Commercial Banks 11-15%- Prime Lending Rate (PLR)
is that rate of interest at which a bank lends to its best customers with highest credit worthiness
CASH RESERVE RATIO: 6%- liquid cash that banks have to maintain with the Reserve Bank of India
(RBI) as a percentage of their demand and time liabilities and borrowing from CBLO market

STATUTORY LIQUIDITY RATIO: 25% - SLR refers to the amount that all banks require to maintain in
form of approved government securities.

BANK RATE: 6%- Longer term borrowing rate from RBI, bill re discounting rate

REPO RATE: 5.75%- Short term Bank borrowing from RBI by pledging government bonds as security
when banks have to meet temporary shortfalls. The banks then repay the loan by repurchasing the
securities from RBI by paying the principle and the applicable rate

REVERSE REPO RATE: 4.5%- Short term lending to RBI when banks have surplus liquidity

CAR- Capital Adequacy Ratio- As per Basel 2 norms the minimum is 8% while RBI has fixed 9% as CAR
-It is amount of a bank's own z (Tier 1 and Tier 2 capital) expressed as a percentage of its risk
weighted credit exposures i.e. (Capital/Risk) determines the capacity of the bank in terms of
honoring deposit withdrawals and managing other risk such as credit default risk, operational risk.
In case of Scheduled Commercial Banks CAR= 9 per cent
For New Private Sector Banks CAR = 10 per cent
For Banks undertaking Insurance Business CAR = 10 per cent
For Local Area Banks CAR =15 per cent

LAF: Liquidity Adjustment facility- The RBI uses Repo and Reverse Repo to aid banks in adjusting
their liquidity requirements and help in meeting Monetary policy measures. The difference between
the two rates is called the Interest Rate Corridor (Explained in class)

6. PRIVATE BANKING

Caters to Super High Net worth customers- minimum account opening cheques: 4 crores (HSBC), 1
Crore (ICICI). Aim is to make fee based incomes by offering structured Products and specialized
investment services from which bank earns commissions. Stress is mainly on customized investment
products which are specifically designed for them using derivatives, Equity linked note, capital
protection equity plans using Constant Proportionate portfolio investment (CPPI model) (Explained
in class)etc. Lending functions are secondary and a part of the service functions. Customer service
being rendered on a more personal basis, dedicated Relationship Managers with 8 to 10 years of
investment experience. All products and services are offered at discounted or special rates. Deposit
rates better, remittance charges waived, foreign exchange conversion rate few paises plus minus the
interbank rate, loan rates discounted, documentation waived (fundamentally similar services given
to HNIs in Retail banking except Investment products which are personally customized for these
individual clients while in Retail HNI banking, products are customized for the entire group of
customers)