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Banking Overview

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Banking Overview

  1. 1. Agenda <ul><li>I Introduction to Banking </li></ul><ul><li>II Introduction to Retail Banking </li></ul><ul><li>III Banking Terminology </li></ul><ul><li>IV CASA </li></ul><ul><li>V Time Deposits </li></ul><ul><li>VI Loans </li></ul><ul><li>VII Remittances </li></ul><ul><li>VIII Non-Branch Delivery Channels </li></ul><ul><li>IX Audit and Supervision </li></ul><ul><li>X Software Expectations </li></ul><ul><li>XI Wrap-Up </li></ul>
  2. 2. Introduction to Banking
  3. 3. Banks <ul><li>Role of Intermediary </li></ul><ul><li>Banks and “Banking” Functions </li></ul><ul><li>Competitors to Banks </li></ul><ul><li>“ Disintermediation” </li></ul><ul><li>Changing Role of Banks </li></ul><ul><li>Towards a Financial Supermarket... </li></ul>
  4. 4. What is Banking <ul><li>Borrowing and safe keeping of money </li></ul><ul><li>Lending of money </li></ul><ul><li>Transmitting of money </li></ul><ul><li>Exchanging of money </li></ul><ul><li>Exchange of financial information </li></ul>
  5. 5. BANKING FRAMEWORK <ul><li>Retail Banking </li></ul><ul><ul><li>CASA, Deposits, Loans, Credit Cards, FX, Remittances, Securitization </li></ul></ul><ul><li>Corporate Banking </li></ul><ul><ul><li>Trade Finance, Project Finance, Bills, LCs, Guarantees, Syndicated Financing </li></ul></ul><ul><li>Investment Banking </li></ul><ul><ul><li>FX, Money Markets, Securities, Leasing, Factoring </li></ul></ul>
  6. 6. <ul><li>Private Banking Trusts, Portfolio Management </li></ul><ul><li>Fiduciary Services </li></ul><ul><ul><li>Pensions, Custody Services, Will & Estate Management </li></ul></ul><ul><li>Other services Correspondent Banking, Safe deposit Vaults, Insurance, Travel, Bill Payment, Tax Counselling </li></ul>BANKING FRAMEWORK-2
  7. 7. Retail VS Wholesale Banking <ul><li>Retail Banking Wholesale Banking </li></ul><ul><li>Focus On Individual Customers Focus On Large Corporate Entities </li></ul><ul><li>Wide Branch Network Limited Branch Networking </li></ul><ul><li>Variety Of Services Available Focus On Smaller Customer Base </li></ul>
  8. 8. Money Multiplier Effect <ul><li>Money supply creation by Banks </li></ul><ul><li>Need to regulate and control </li></ul><ul><li>Methodology of regulation </li></ul>
  9. 9. Customer and the Bank <ul><li>Who is a “Customer” </li></ul><ul><li>Customer Confidentiality </li></ul><ul><li>“Ownership” of Accounts </li></ul><ul><li>Precaution against “Conversion” and “Frauds” </li></ul><ul><li>Legal Responsibility to prevent Money Laundering Breaking country’s Laws </li></ul>
  10. 10. Bank-Client Relationship <ul><li>“ Good Faith” </li></ul><ul><li>Banker’s General Right of Lien </li></ul><ul><li>Rights of Set -Off </li></ul><ul><li>“ Estoppel” </li></ul><ul><li>Confidentiality </li></ul><ul><li>Disclosure Under Laws of the Land </li></ul><ul><li>Full Disclosure of Terms and Conditions of Relationship </li></ul><ul><li>Can bank Discriminate between Customers in Treatment? </li></ul>
  11. 11. Interest <ul><li>Accrual </li></ul><ul><li>Capitalization </li></ul><ul><li>Accrual Frequency </li></ul><ul><li>Capitalization Frequency </li></ul><ul><li>Interest Methods </li></ul><ul><ul><li>Monthly Minimum, Daily Balance, Average Balance,... </li></ul></ul><ul><li>Interest Basis </li></ul><ul><ul><li>30/360, Actual/Actual, Actual/360,... </li></ul></ul><ul><li>Withholding tax, Interest tax deduction </li></ul>
  12. 12. <ul><li>Bank Accounting Peculiarities </li></ul><ul><li>“Window Dressing” </li></ul><ul><li>Income Recognition </li></ul><ul><li>NPA Classification </li></ul><ul><li>International Accountancy Rules </li></ul><ul><li>Capital Adequacy </li></ul><ul><li>Deposit Risk Cover Protection </li></ul>Banks’ Books of Accounts
  13. 13. General Ledger <ul><li>General Ledger and Subsidiary Ledger </li></ul><ul><li>Central Bank Reporting </li></ul><ul><li>Multi-Currency Treatment </li></ul><ul><li>Treatment of Inter-Branch Transactions </li></ul><ul><li>Treatment of Suspense Accounts, Entries </li></ul><ul><li>External General Ledger </li></ul>
  14. 14. Lending of Money <ul><li>Statutory controls on lending </li></ul><ul><li>Principles of sound lending </li></ul><ul><li>Purposes </li></ul><ul><li>Periods </li></ul><ul><li>Types of lending </li></ul><ul><li>Security for advances </li></ul>
  15. 15. Principles of Sound Lending <ul><li>Borrower </li></ul><ul><ul><li>Character </li></ul></ul><ul><ul><li>Capital </li></ul></ul><ul><ul><li>Capability </li></ul></ul><ul><li>Bank </li></ul><ul><ul><li>Safety of funds </li></ul></ul><ul><ul><li>Spread of risk </li></ul></ul><ul><ul><li>Liquidity of funds </li></ul></ul><ul><ul><li>Profitability </li></ul></ul><ul><li>Viability of the scheme </li></ul>
  16. 16. Traditional Banking... <ul><li>Competition, Disintermediation and Diminishing Spreads </li></ul><ul><li>Movement towards Fee-income </li></ul><ul><li>Technology Driving Banking, Banking Driving Technology </li></ul><ul><li>Market Place crowded, Mixed, Technology-driven </li></ul>
  17. 17. Types of lending <ul><li>Fund based </li></ul><ul><ul><li>Term Loans </li></ul></ul><ul><ul><li>Cash Credit / Overdraft </li></ul></ul><ul><ul><li>Purchase & Discount of Bills (inland & foreign) </li></ul></ul><ul><li>Non Fund based </li></ul><ul><ul><li>Letters of credit </li></ul></ul><ul><ul><li>Guarantee </li></ul></ul><ul><ul><li>Bills Co-acceptance </li></ul></ul>
  18. 18. Term Loans <ul><li>Fixed Amount </li></ul><ul><li>For purchase of fixed assets </li></ul><ul><li>Payable </li></ul><ul><ul><li>in suitable installments </li></ul></ul><ul><ul><li>in lump sum (principal + interest) </li></ul></ul><ul><li>Usually Secured </li></ul>
  19. 19. Cash Credits & Overdrafts <ul><li>Running accounts </li></ul><ul><li>Drawings fluctuate within a pre-determined band </li></ul><ul><li>As many drawals as necessary </li></ul><ul><li>Interest charged on daily balances </li></ul><ul><li>Cash credit : Usually secured </li></ul><ul><li>Overdraft : Could be secured or unsecured </li></ul>
  20. 20. Bills : Purchase & Discount BILLS INLAND FOREIGN DEMAND USANCE DOCUMENTARY CLEAN
  21. 21. Types of Bills <ul><li>Demand Bills </li></ul><ul><ul><li>Payable on demand or At sight or </li></ul></ul><ul><ul><li>On presentment or </li></ul></ul><ul><ul><li>No time for payment specified </li></ul></ul><ul><li>Usance Bills </li></ul><ul><ul><li>Payable on the expiry of a certain period after date or sight </li></ul></ul>
  22. 22. Types of Bills <ul><li>Clean Bill </li></ul><ul><ul><li>Unaccompanied by any other allied documents </li></ul></ul><ul><ul><li>eg : Cheques, Warrants </li></ul></ul><ul><ul><li>Trade bills without the relative document evidencing dispatch of goods </li></ul></ul><ul><ul><li>Unsecured. Can be Sight or usance </li></ul></ul><ul><li>Documentary Bill </li></ul><ul><ul><li>Accompanied by document of title to goods </li></ul></ul><ul><ul><li>Secured/Unsecured: Secured/Unsecured </li></ul></ul>
  23. 23. Advantages of Bill Business <ul><li>Definite date of repayment </li></ul><ul><li>Re-discounting facilities </li></ul><ul><li>Stability of value </li></ul><ul><li>High profitability </li></ul><ul><li>Greater legal protection </li></ul>
  24. 24. Bill Transactions <ul><li>Collection </li></ul><ul><li>Purchase & Discount </li></ul><ul><li>Negotiation </li></ul>
  25. 25. Letters of Credit <ul><li>Issuing bank undertakes to make payment to the beneficiary of the LC against presentation of specified documents </li></ul><ul><li>Beneficiary is assured of payment </li></ul><ul><li>No immediate outflow of funds </li></ul><ul><li>Parties to a credit </li></ul><ul><ul><li>Applicant (buyer) </li></ul></ul><ul><ul><li>Beneficiary (seller) </li></ul></ul><ul><ul><li>Issuing bank </li></ul></ul>
  26. 26. Guarantees <ul><li>To perform the promise or discharge the liability of a third party in case of his default </li></ul><ul><li>Three parties </li></ul><ul><ul><li>Guarantor / Surety (banker) </li></ul></ul><ul><ul><li>Principal Debtor (on whose behalf) </li></ul></ul><ul><ul><li>Principal Creditor (in whose favour) </li></ul></ul><ul><li>Financial Guarantee </li></ul><ul><li>Performance Guarantee </li></ul><ul><li>Deferred payment guarantee </li></ul><ul><li>No immediate outflow of funds </li></ul>
  27. 27. Related Services <ul><li>Merchant banking </li></ul><ul><li>Counselling corporate clients on </li></ul><ul><ul><li>Capital structure </li></ul></ul><ul><ul><li>Form of capital to be raised </li></ul></ul><ul><ul><li>Terms & conditions of the issue </li></ul></ul><ul><ul><li>Under writing of the issue </li></ul></ul><ul><ul><li>Timing of the issue </li></ul></ul><ul><ul><li>Preparation of the prospectus </li></ul></ul><ul><ul><li>Raising of long term loans </li></ul></ul>
  28. 28. Related Services (contd...) <ul><li>Trustee, executor, & admin services </li></ul><ul><li>To handle </li></ul><ul><ul><li>Investments / estates / properties </li></ul></ul><ul><ul><li>Distribution after death </li></ul></ul><ul><li>To act as guardian of a minor’s property </li></ul><ul><li>To administer public trusts </li></ul>
  29. 29. <ul><li>Factoring </li></ul><ul><li>Factor maintains the trade debts of the client company </li></ul><ul><ul><li>Maintains sales ledger </li></ul></ul><ul><ul><li>Issues invoices </li></ul></ul><ul><ul><li>Collects payments </li></ul></ul><ul><li>Credit protection </li></ul><ul><ul><li>Factor assumes responsibility for trade debts, due to the client company </li></ul></ul><ul><li>Factor advances a proportion of the trade debts immediately and the balance on maturity of the debts </li></ul><ul><ul><li>Improves client's liquidity </li></ul></ul>Related Services
  30. 30. Clearing House Operations <ul><li>Outward clearing </li></ul><ul><li>Inward clearing </li></ul><ul><li>Returns- outward clearing </li></ul><ul><li>Returns- Inward clearing </li></ul><ul><li>Re-presentations </li></ul><ul><li>Time factor </li></ul><ul><li>Reconciliation </li></ul>
  31. 31. Automated Clearing House <ul><li>Electronic clearing </li></ul><ul><li>Paperless transfers of funds </li></ul><ul><li>Settlement </li></ul>
  32. 32. Foreign Exchange <ul><li>FX Market </li></ul><ul><li>Exchange rates </li></ul><ul><li>Risks </li></ul><ul><li>Revaluation </li></ul><ul><li>Mark to the market </li></ul><ul><li>Risk management </li></ul>
  33. 33. Legal aspects in Banking <ul><li>Customer </li></ul><ul><li>Types of legal relationships </li></ul><ul><li>Duties and obligations </li></ul><ul><li>Rights and remedies </li></ul><ul><li>Confidentiality </li></ul><ul><li>Law relating to Limitations </li></ul><ul><li>Disclosure regulations in Accounts </li></ul>
  34. 34. Law and Banking <ul><li>Application of Law </li></ul><ul><li>Jurisdiction </li></ul><ul><li>Civil laws </li></ul><ul><li>Criminal laws </li></ul><ul><li>Law of limitation </li></ul>
  35. 35. Supervision of Banks <ul><li>“Central” Bank of the country </li></ul><ul><li>Degrees of supervision </li></ul><ul><li>Modes of Supervision </li></ul><ul><li>Audit and self-regulation </li></ul><ul><li>Importance of proper supervision </li></ul><ul><li>Cross-country regulation of Banks </li></ul>
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