1. Banks and Stock Exchange
3rd November, 2009
Duration: 1 hour 30 minutes

2. Topics to be covered Bank’s Definition Types of Bank
Financial Institutions
Types of Banking Products

3. Banks

4. Definition of Banks
According to the English law, bank is a person who carries out business of banking which is specified as:
“Engaging in the business of keeping money for savings and checking accounts or for exchange or for issuing loans and credit etc .”

5. Role of Banks Accepting deposits Lending money
Issue of cheques, banknotes, drafts
Processing payments by telephonic and internet transfer
Providing letter of credit, guarantees, securities underwriting and off balance sheet exposures
Safekeeping of documents and other items in safe deposited vault
Currency exchange
Sale, distribution or brokerage of insurance and mutual funds

6. Types of Banks

7. Type of banks Central Bank Commercial Banks Co-operative Banks
Foreign Banks (31)
Public Sector Bank (SBI and associates 7,others 20)
Private Sector Banks (21)

8. Central Banks Also called apex bank (In Indian case RBI)
A Government monetary authority that issues currency and regulates the supply of credit
Main duties of Central bank are:
Formation of monetary policy
Controlling credit supply
Issue of currency

9. Duties of Central Bank Government’s banker and banker’s bank
Managing country’s foreign exchange and gold reserves
Regulation and supervision of banking industry
Deciding official interest rate (bank rate)

10. Terminology
Bank rate: referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply (Currently 6%)
Repo rate: rate at which RBI lends to banks (Currently 4.75%)
(While repo rate is a short-term measure, i.e. applicable to short-term loans and used for controlling the amount of money in the market, bank rate is a long-term measure and is governed by the long-term monetary policies of the governing bank concerned.)
Reverse repo rate: rate at which banks lend to RBI (Currently 3.25%)
Statutory liquidity ratio (SLR): SLR refers to the amount that all banks require to maintain in cash or in the form of Gold or approved securities. (Currently 24%)
Cash reserve ratio (CRR): banks are required to keep only a fraction of their deposit liabilities in the form of liquid cash with the RBI for ensuring safety and liquidity of deposits (Currently 5%)
Prime lending rate (PLR): The rate of interest at which banks lend to favored customers

11. Commercial Banks
Definition: financial institution that accepts demand deposits and makes loans and provides other services for the public
The main duties of commercial banks are
Processing payments
Accepting deposits
Lending
Issuing cheques and drafts
Currency exchange
Sale, distribution or brokerage of insurance and mutual funds

12. Type of Banks Co-operative bank:
Co operative banks are those banks which are registered under Cooperative Societies Act
There mainly two type of co-operative banks
Urban co operative
Rural co operative
Foreign bank:
A bank which is incorporated outside India and whose majority shareholders are foreign nationals
Public sector bank:
A bank whose majority shareholders are government or financial institutions
Private sector bank:
A bank whose majority shareholders are promoters or general public

13. Type of Banking
Retail banking: Banking services offered to individual customers.
Corporate banking: Banking services for large corporations or firms. This type of banking is designed to deal with major financial transactions that do not generally involve individuals.
Universal banking: all services are given under one head (Banking that includes investment services in addition to services related to savings and loans)
Investment banking: A financial intermediary that performs a variety of services. This includes underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients.
Merchant banking: Financial institution primarily engaged in offering financial services and advice to corporations and to wealthy individuals.
(The chief distinction between an investment bank and a merchant bank is that a merchant bank invests its own capital in a client company whereas an investment bank purely distributes (and trades) the securities of that company in its capital raising role)

14. Financial Institutions

15. Financial institutions
Development Banks
International Financial Corporation
EXIM Bank
NABARD
State Finance Institutes
Indigenous Bank

16. Development Financial Institutions
Post independence period was planned development in India with emphasis on mobilization of savings and channelising investment to meet plan priorities
DFI were introduced with the aim of providing long term finance to priority sectors
IDBI: Industrial Development Bank of India is one of India's lending public sector banks, was established in 1964 to provide credit and other facilities for development of Indian industry
ICICI: Establish in 1955, facilitated industrial development in line with economic objectives. It evolved several new products to meet the changing needs of the corporate sector

17. International Finance Corporation (IFC)
IFC promotes sustainable private sector investment in developing countries as a way to reduce poverty and improve peoples’ lives
IFC is a member of the World Bank group and is headquartered in Washington DC. It shares the primary objective of all World Bank group institutions: to improve the quality of lives of people in developing member countries
It promotes sustainable development primarily by
Financing private sector projects located in developing world
Helping private companies in developing world in mobilizing finances in international financial market
Providing advice and technical assistance to business enrolments

18. EXIM Bank India
Export Import Bank of India is an Indian government owned financial institution created under Export Import Act of India, 1961
The bank’s functions are segmented into several operating groups like
Corporate banking group
Project finance group
Lines of credit group
SME group
Export services group
Fee-based exports

19. NABARD
National Bank of Agriculture and Rural Development is an apex development bank in India
It has been accredited with “Matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India”

20. Role of NABARD
Serves as apex finance agency for the institutions providing investment and production credit
Takes measures towards institutional building for improving absorptive capacity of credit delivery system including monitoring, formulation, rehabilitation schemes, restructuring of credit institutions, training the personnel, etc.
Coordinates the rural financing activities of all institutions engaged in development work at the field level and maintains liaison with Government of India, State Governments, RBI and other national level institutions concerned with policy formulation
Undertakes monitoring and evaluation of projects refinanced by it. NABARD refinance is available to SCARDBS, SCBS, RRBS, CBS and other financial institutions approved by RBI

21. State Financial Corporations (SFC)
The group’s principal activity is to provide a range of consumer and commercial banking services to individuals, businesses and industries. It is a holding company of first state bank
The group also provides night depositary, travelers cheques, cashiers cheques, domestic collection, bank drafts and banking by mail and internet
Industrial concerns eligible for its assistance are manufacturing, mining, transport, power generation, hotel, hospitals and any other activity approved by IDBI

22. Indigenous Bank
Individual bankers like Shroffs, Seths, Sahukars, Mahajans, etc. combine trading and other business with money lending
Vary in size from petty lenders to substantial shroffs
Act as money changers and finance internal trade through hundis (internal bills of exchange)
Indigenous banking is usually family owned business employing own working capital
At one point it was estimated that IBs met about 90% of the financial requirements of rural India

23. Indigenous Bank
Cooperative banks have the history of more than 100 years
They are an important constituent of Indian financial system judging by the role assigned by them, the expectations they are supposed to fulfill, their number and the number of offices they operate
While the cooperative banks in rural areas mainly finance agricultural activities namely farming, cattle, milk, hatchery, personal finance, etc. along with some small scale industries and self employment driven activities
The cooperative banks in urban areas mainly finance various categories of people for self employment, industry, small scale units, consumer finance, personal finance, home finance, etc.

24. Types of Banking Products

25. Types of Banking Products - Retail Banking
The main banking products can be defined as asset side products and liabilities side products and fee based products
Asset side products includes, loans and advances, investments, etc.
Liability side includes deposits and borrowing
Fee based products include all other products which does not fit into above category

26. Asset Products Asset products can be categories into two parts
1. Funding
Long term funding
Short term funding
2. Investments

27. Long Term Funding Following loans are included in long term funding
Term loan: Term Loans are extended for the purpose of acquisition of fixed assets. viz., land, building, plant and machinery for setting up of new industrial units or expansion/modernisation of existing units
Term loan could be secured or unsecured
Example: Mortgage loan

28. Short Term Financing Products
Overdraft
Cash Credit
Debit and Credit Cards
Bill Discounting

29. Types of Loans Home loan Car loan Consumer durable loans
Education loan
Loan against property (LOP)
Loan against shares and debentures

30. Investments Bank’s investments are:
Investments in government securities
Investments in other corporate bonds, stocks, mutual funds
Investment in commodities, Real estate
Investment in highly sophisticated products

31. Liability products Deposits Fixed deposits or term deposits
Recurring deposits
Borrowings
Borrowings form other banks

32. Fee based products Fund transfer Bill payments Treasury services
Broking services
Safe deposit vaults
Foreign exchanges
Internet banking, Phone banking, Mobile banking, ATM facility
Investments and Insurances

33. Thank You!