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Banks and Financial Institutions

Presented By Group 2

Deepak Bhakt Dinesh Kumar Karnam Debashish Kumar Dhar Bipin Kumar Bharath B N Deepthi S

Contents
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Introduction Operations and Special Roles of Banks Rural Business/ Banking Entry of Foreign Banks Specialized Financial Institutions Universal/ Global Banking Securitization Co-operative Banks What is RD/CA/SB/FD/PF/Pension Accounts and Types of Accounts What is Life Insurance. Some light on Insurance Companies

Introduction
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The name bank derives from the Italian word banco it means desk/bench.

A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities.

Banker includes a body of persons, whether incorporated or not, who

carry on the business of banking. -Bills of Exchange Act (contains statutory definition of the term banker)

Introduction
Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as:

Conducting current accounts for his customers Paying cheques drawn on him, and Collecting cheques for his customers.

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Banking in India originated way back in 1786. First banks were General bank of India and Bank of Hindustan.

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Oldest bank into existence in India is State Bank of India. Pre -Independence Era-

- Bank of Bengal - Bank of Bombay - Bank of Madras

RBI took over central banking responsibilities from IBI (1935) Imperial Bank of India (1925)

State Bank of India (1955) & Nationalizati on of RBI (1949)

Bank of Calcutta (June 1806)

Introduction
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Banking system occupies an important place in Indian economy. These banks provides credit to industry, commerce, trade & agriculture. Now a days banks expanding themselves. They entered into foreign trade, insurance, mutual funds, capital market for their expansion.

It also plays pivotal role in the economic development of a country & forms the core of the money market in the advanced country.

Bank is a part of Money Market. As if we see the segments of money market all most working is done by banks.

Introduction
Money Market

Organized segment segment

Unorganized

Classification of banks
Reserve Bank of India

Ownership Place

Performance

Functions Norms

Working

Public sector bank Private sector bank Co-operative

Schedule Non-scheduled

Commercial Development

Urban Rural

Import Export

Commercial Banking Structure

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Oldest institution having wide network of branches. Having lions shares in total banking operations. Initially, they were established as corporate bodies with the share holdings of private individuals but after they has been a drift towards state ownership & control.

Today, bank constitute a strong public sector in Indian commercial banking.

Commercial banks accepts short term deposits & provides short term

Commercial Banking Structure

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STRUCTURE OF COMMERCIAL BANKS

Commercial banks

Public sector banks

Private sector banks

State bank Group

Nationalized Banks

Indian Banks

Foreign Banks

Operations and Special Roles of Banks and Financial Institutions

OPERATIONS
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Issue of Money Netting and Settlement of Payments Credit Intermediation Credit Quality Improvement Maturity Transformation Money Creation

SPECIAL ROLES
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Facilitating the need of credit for all sections of the society Mobilizing of savings at reasonable rates with several options Internet Banking Lending and Deposit Business Securities Issuing Asset Management Foreign Exchange Trading

Rural Banking

RURAL BANKING
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Rural Banks were established under the provisions of the Regional Rural Banks Act, 1976 with a view to develop the rural economy.

Rural Banks are jointly owned by Government of India, the concerned State Government and Sponsor Banks in the proportion of 50%, 15% and 35% respectively.

Rural Banks operation is limited to notified area comprising a few districts in a State.

Benefits of Rural Banks

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Promoting sustainable and equitable agriculture and rural prosperity through effective credit support, related services and institutional development .

Improve the quality of service and developments in Information Technology.

Improve the high standards of performance and operations of NABARD.

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Improves credit flow. Opportunity for diversification and growth. Provides short term and term loans for investment purposes.

LIST OF SOME RURAL BANKS IN INDIA:

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NABARD Haryana State Cooperative Apex Bank Limited United Bank of India Syndicate Bank Co-operative Bank The Government should play a supportive and regulatory role in

developing the banking business in Rural India. It should facilitate private and public sector investments.

REGIONAL RURAL BANKS FACILITATES SMEs

SR.NO 1 2 NAME OF RRB UTTAR BIHAR GHAMIN BANK NAME OF SPONSOR BANKS CENTRAL BANK OF INDIA STATE BIHAR GUJARAT

BARODA GUJRAT BANK OF BARODA GHAMIN BANK HARYANA GHAMIN BANK TRIPURA GHAMIN BANK CHAITANYA GODAVARI GHAMIN BANK PUNJAB NATIONAL BANK UNITED BANK OF INDIA ANDHRA BANK

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HARYANA TRIPURA

ANDHRA PRADESH

Entry Of Foreign Banks in India

Government Plan For Foreign Banks

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Government has come up with a road map for expansion of foreign banks in India.

The road map has two phases:

During the first phase between March 2005 and March 2009, foreign

banks may establish a presence by way of setting up a wholly owned subsidiary (WOS) or conversion of existing branches into a WOS.
The

second phase had commenced in April 2009 after a review of the

experience gained after due consultation with all the stake holders in the banking sector.

Eligibility
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The setting up of branches in India should have the approval of the home country regulator.

Economic and political relations between India and the country of incorporation of the foreign bank

Financial soundness of the foreign bank Ownership pattern of the foreign bank International and home country ranking of the foreign bank Rating of the foreign bank by international rating agencies

Accounting, Prudential Norms and Other Requirements

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Will be subject to the licensing requirements and conditions, broadly consistent with those for new private sector banks

Will be governed by the provisions of Companies Act, 1956,

Tax Banking Regulation Act, 1949 treatment

Minimum Capital Requirement

The capital requirement of existing private sector banks should be on par with the entry capital requirement for new private sector banks prescribed in RBI guidelines of January 3, 2001, which is initially Rs.200 crores, with a commitment to increase to Rs.300 crores within three years.

In order to meet with this requirement, all banks in private sector should have a net worth of Rs.300 crores at all times.

The banks which are yet to achieve the required level of net worth will have to submit a time-bound program for capital augmentation to RBI. Where the net worth declines to a level below Rs.300 crores, it should be

Specialized Banking Institutions

SPECIALISED FINANCIAL INSTITUTIONS

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INDUSTRIAL DEVELOPMENT BANK INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA

STATE FINANCIAL CORPORATIONS EXIM BANK NATIONAL BANK DEVELOPMENT FOR AGRICULTURAL AND RURAL

Universal Banking and Innovations

Universal Banking
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It is a multi-purpose and multi functional financial supermarket providing both banking and financial services through a single window

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Most common in European countries Germany, Switzerland Indias emerging universal banks ICICI, SBI, HDFC, Kotak Mahindra

Universal Banking
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ICICI was the first financial institution to convert itself into truly universal bank

Infosys Technologies Ltd has launched finacle Bank-in-a-Box (BIAB), a preconfigured and fully integrated framework for banking transformation

Advantages of Universal Banking

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Economies of scale - Lower cost, higher output and better products Resource utilization Possesses the information on risk

characteristics of the clients

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Easy marketing on the foundation of a brand name One-stop shopping

Disadvantages of Universal Banking

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Grey area of universal bank Differences in regulatory requirement for a bank and DFI

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No expertise in long term lending NPA problem remained intact Unlikely to improve the situation concerning NPAs

Innovations in Banking Industry

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Internet Banking Mobile Banking Real Time Gross Settlement (RTGS) Electronic Clearing System (ECS) Automated Teller Machines (ATMs) Core Banking Debit and Credit cards

Securitization

Introduction
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In era of 1970 market interest rate rose Demand for loans were raising as compared to deposits collected by banks

Process of securitization born Assumptions :

$ Home is the most preferred possession $ Default rate were minimal and predictable

Continued. . .

Initially only mortgage loan were securitized

First auto loan deal was secutrized in 1985

Credit card securitization came up in 1986

In 1990s securitization entered insurance market

What is Securitization???

Pooling and repackaging of cash flow producing financial assets into securities that are then sold to investors.

Need for Securitization

Raising funds

Enhancing Liquidity

Attainment of CAR

Increased Operating Efficiency

Generic deal diagram

Credit Enhanceme 2 Collecti 3 nt Credit enhancemen ons Cash Providers 9 Issue of 1 Origi securities nal t SPV 11 Investo flows Loan Collecti Servicin rs 10 Sale on 6 g of Agent 4 Rati of 8 Subscription to asse 7 Origina Purchas Rating securiti securities ng t Arran Agencyes e tor ger conside 5 Contracts ration Structu Ongoing rer cash flows Initial cash flows Obligor s

Types of Risk Involved

Indian Securitization market is divided as below:

Overview
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Securitization began in India in early 1990s

First deal between Citibank and GIC Mutual Fund worth Rs 160 mn

Indias retail securitization market shows greater stability as compared to the US market-CRISIL

ICICI bank has carried out the largest securitization deal amounting to Rs 19,299 mn in 2007.

Benefits to Originator
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Raising fund at a cheaper rate

Increases Borrowing Capacity

Improves Profitability

Diversification of credit risk

Reduces Asset- Liability mismatch

Benefits to Investors
Portfolio Diversification

Higher yields and good liquidity

Flexibility

Less Volatile

Benefits to National Economy

Capital market development

Source Of Capital

Data Transparency

Dispersion of Financial Assets

Threats of Securitization

Passes on database to investors

Leaves the entity with junk assets

Costly source

Uneconomical for lower requirements

Co-operative Society

Co-operative Society
An autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically Controlled enterprise.
-International Co-operative Alliance (ICA)

Characteristics Cooperative Society

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Open membership Voluntary Association State control Sources of Finance Democratic Management Service motive Separate Legal Entity Distribution of Surplus Self-help through mutual cooperation

Types of Cooperative Societies

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Producers Co-operative societies Consumers Co-operative societies Marketing Co-operative societies Credit Co-operative societies Farmers Co-operative societies Housing Co-operative societies Labor Co-operative societies

Co-operative Banks in India

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Cooperative banks in India finance rural areas under:

Farming

Cattle Milk Hatchery Personal

finance

Co-operative Banks in India

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Cooperative banks in India finance urban areas under:

Self-employment Industries Small Home

scale units finance

Consumer finance Personal

finance

Types of Deposits

TYPES OF DEPOSITS
1. DEMAND DEPOSITS

SAVING ACCOUNT Savings deposits are subject to restrictions on the number of

withdrawals as well as on the amounts of withdrawals during any specified period. Further, minimum balances may be prescribed in order to offset the cost of maintaining and servicing such deposits. RATE OF INTEREST : 4.00% p.a. (w.e.f. 03.05.2011)

TYPES OF DEPOSITS
CURRENT ACCOUNT

A current account is always a Demand Deposit and the bank is obliged to pay the money on demand. The Current accounts bear

no interest and they account for the smallest fraction among the current, saving and term deposits. They provide the convenient operation facility to the individual/ firm. The cost to maintain the accounts is high and banks ask the customers to keep a minimum balance.

TYPES OF DEPOSITS
2.

TERM DEPOSITS
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FIXED DEPOSITS [FDs] This type of deposit account allows deposit to be made of an

amount for a specified period. This period of deposit may range from 15 days to three years or more during which no withdrawal is allowed. However, on request, the depositor can en-cash the amount before its maturity.

TYPES OF DEPOSITS
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RECURRING DEPOSITS [RD]

Fixed amount is deposited at regular intervals for a fixed term

and the repayment of principal and accumulated interest is made at the end of the term. These deposits are usually targeted at persons who are salaried or receive other regular income. A Recurring Deposit can usually be opened for any period from 6 months to 120 months.

TYPES OF DEPOSITS

PROVIDENT FUND
Provident Fund is the fund which is composed of the contributions made

by the employee during the time he has worked along with an equal contribution by his employers. It is calculated as a percentage of his salary and is returned to him on his retirement.

TYPES OF DEPOSITS

TYPES OF PROVIDENT FUND

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Statutory Provident Funds Voluntary Provident Funds Recognized Provident Fund Unrecognized Provident Fund Public Provident Fund

PUBLIC PROVIDENT FUND - 1968

Scheme introduced by Central Government in 1968. The Scheme enables the members of the public to make contributions to the Fund and obtain Income Tax rebate under the relevant provisions of the Income Tax. Eligibility $Individuals $Individuals on behalf of a minor Minimum / Maximum Investment ( w.e.f. 15-11-2002 ) Minimum Rs.500/- per annum in multiples of Rs.5/Maximum Rs.70,000/- per annum Duration $15 years $Can be extended for one or more blocks of 5 years $Account can be discontinued but repayment of subscriptions along with interest only after 15 years. Rate of Interest 8% per annum credited in account on 31st March every year calculated on the minimum balance between 5th day and end of the month.

PENSION ACCOUNT

A pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.

A Pension Saving Account is a Zero Balance Account that accumulates your pension over the years. It comes with a free International Debit Card and facilities like Phone and Net Banking.

PENSION ACCOUNT

FEATURES & BENEFITS

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The Pension Saving account is a Zero Balance Account Timely credit of receivables Free International Debit Card Enjoy facilities such as Net Banking, Phone Banking, Bill Pay, ATM

facility, inter-city and inter-branch banking

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Pension Accounts are transferable from one branch/bank to another per the process laid down by the pension authorities

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Insurance Companies

INSURANCE COMPANIES
Insurance is the equitable transfer of the risk of a loss, from one entity to another, In exchange for payment.

INSURABILITY
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Large number of similar exposure units Definite loss Accidental loss Large loss Affordable Premium Calculable loss Limited risk of catastrophically large losses

TYPES OF INSURANCE
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Vehicle Insurance Home Insurance Health Insurance Accident, sickness and unemployment Casualty Insurance Life Insurance Burial Insurance Property Insurance Credit Insurance

INSURERS BUSINESS MODEL

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The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept.

Profit can be reduced to a simple equation: Profit = Earned Premium + investment income - incurred loss

-underwriting expenses.
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Insurers make money in two ways: i. Through Underwriting, the process by which insurers select the risks

to insure and decide how much in premiums to charge for accepting those risks

CLASSIFICATION

SOME INSURANCE COMPANIES

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Bajaj Allianz Life Insurance Company Ltd Birla Sun Life Insurance Co. Ltd HDFC Standard life Insurance Co. Ltd ICICI Prudential Life Insurance Co. Ltd. ING Vysya Life Insurance Company Ltd. Life Insurance Corporation of India Max New York Life Insurance Co. Ltd

SOME INSURANCE COMPANIES

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Met Life India Insurance Company Ltd. Kotak Mahindra Old Mutual Life Insurance Ltd SBI Life Insurance Co. Ltd. Tata AIG Life Insurance Company Ltd. Reliance Life Insurance Company Ltd.

LIFE INSURANCE
Life insurance is a contract between the policy holder and the insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment.

Challenges for Banks

Challenge Faced by Foreign Bank in India

With liberalisation, the Financial Institution plays a larger role in the allocation of resources.

Focus at ensuring greater financial stability. Enhance efficiency and productivity de-regulation of interest rates, establishment of new banks, more liberal entry of foreign banks, enhancing the role of public shareholders in nationalised and allowing foreign direct investment in the private sector banks.

Banks Exposed To Various Challenges

Customer service Branch banking Competition Technology Improving Risk Management Systems Implementation of new accounting standards 'Know Your Customer'

Conclusion

Economic Development Through Banking Systems

Banking System

Banks & Economic Development

IMPORTANCE

Capital formation Creation of money Strengthen the link between organised and unorganised sector Provision of long-term loans Helping agriculture and small scale industries Entrepreneurial development

Banks & Economic Development

Regulation of the flow of national savings Comprehensive infrastructural facilities Maintaining Balance of Trade Mitigating the effects of trade cycle Sectoral Priorities Catalyst in social change Effective implementation of monetary policy

THANK YOU

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