Banking Domain.pdf

training

1. [email protected]

2. OBJECTIVE
⚫ProvideanoverviewofBanking Domain
⚫EnableTechnologypeopleunderstandFinancialTerms
⚫ExplainOperationsinspecificlinesofbanking
⚫CoverGlobalBankingPractices
⚫Introducesomeoftherecentdevelopmentsinbanking

3. KEYWORDS
3
⚫Conceptofmoney
⚫FinancialInstruments
⚫FinancialStatements
⚫IntroductiontoBanking
⚫RetailBanking
⚫ConsumerLending
⚫Cardsand Payments
⚫CommercialandWholesaleBanking
⚫Investmentbanking
⚫InvestmentManagement
⚫Settlement
⚫CorporateServices
⚫Insurance

4. MONEY
4
⚫StandardunitofExchange-advancementoverbartersystem
⚫Currencies-basedupondevelopmentlevelofcountries
⚫ExchangeRates-Whodecides,Peggedcurrencies
⚫Facevalueofcurrency
⚫StandardValuecurrency
⚫Interestchargedonloanamount-SimpleandCompound
⚫Simple-OnRs.100by10percent,amountpaideveryyearisRs.10
⚫Compound-OnRs.100by10percent,amountpaideveryyearvaries

5. INFLATION
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⚫Riseincostofgoodsandservicesoveraperiod
⚫Realrateofinterest=NominalrateofInterest-InflationRate
⚫Nominalrateofinterest=10%
⚫Inflationrate4%
⚫Realrateofinterest=6%
⚫IncreaseinPricesreducesthevalueofcurrency

6. COSTOFCAPITAL
6
Land,Labor,CAPITAL,Enterprise(Idea)
⚫Dependsupon-Borrower,typeoffinancing,markettiming,collateral,
tenurefordebt
⚫Costof capital includefollowing
⚫Interestfordebt
⚫Dividend,expectedearningforequity
⚫WACC-WeightedAverageCostofCapital-Ifmorethanonesourceof
financeisused.
⚫WACC=Costofeach*Weight

7. FINANCIALINSTRUMENTS
7
⚫Capital-Businessneedscapital foroperations, fixedassets.
⚫Methodsbywhichcapitalcanberaised
⚫Debt
⚫BankLoans
⚫Bond/Debentures:Fixed,Floating-rating,Corporate,Govt.
⚫Equity
⚫Ownersequity
⚫VentureCapital
⚫IPOs
⚫MutualFunds

8. …CONTINUED
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⚫Derivatives
Forwards
Future
Options

9. DEBT
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⚫Moneyowedbyoneentitytoother
⚫Costisinterest
⚫Debtisconsideredseniortoequityi.e.theinterestondebtispaid
beforethedividendsonstockincaseofliquidationofassets
⚫Examples-Bonds,Loan,Commercialpapers
⚫Investorschosebetweendebtandequitybasedontheirinvestment
objectives

10. BONDS
10
⚫Aninvestorloansmoneytoanentityataspecificinterestrate.
⚫Smalldepositsfrommultiplepeople
⚫Investmentceiling
⚫Interestisgenerallypaidsemiannually
⚫Factorsinfluencingcouponrate
⚫Prevailingeconomicconditions
⚫IssuersCreditrating(risk)
⚫Inreturninvestorgetsthebond/certificatewhichcontains:
⚫Interestrate(Couponrate)
⚫Maturitydate(Repaymentdate)
⚫Faceamount

11. …CONTINUED
11
⚫Corporatebond
⚫Securedbonds-backedbyspecificassets
⚫Unsecuredbonds(Debentures)
⚫TreasurySecurities(Governmentagencies)
⚫Treasurybills-Shortterm
⚫Treasurybonds-Longterm
⚫Mostsecurebonds

12. EQUITY
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⚫Equity(Stock)-representsownershipinterest
⚫CommonStock
⚫VotingRights
⚫Majorityshareholdersmanageorganization
⚫Popular
⚫CorporationssellsitthroughIPO
⚫Canbetraded insecondarymarkets-BSE,NYSEetc.
⚫PreferredStock
⚫Novotingrights
⚫Fixedrateofreturn

13. MUTUALFUNDS
13
⚫Investmentcompanies
⚫Poolresourcesfromindividualinvestors
⚫MFcompaniesinvestintodiversesectorofeconomy
⚫Investorsareequallyresponsibleforlossorgain
⚫Dividendsearnedaredistributedaccordingtotheinvestment
⚫HedgeFund
⚫Agroupofinvestorswhotakefinancialriskstogetherinordertotry
toearnalotofmoney

14. DERIVATIVES
14
⚫Itisacontractbetweentwoormoreparties
⚫Obligationonbuyerandseller
⚫Forward
⚫Agreementtobuy/sellanassetinfutureataspecifiedprice
⚫Ex.MCX
⚫Future
⚫Agreementtobuy/sellanassetinfutureatafutureprice

15. FINANCIALMARKETS
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Placewherefinancial instrumentsaretraded
⚫PrimaryFinancialMarkets
⚫Newfinancialinstrumentsareissued
⚫InitialPublicOffering
⚫SecondaryFinancialMarkets
⚫Primaryinstruments(Shares)aretraded
⚫Investorscanmonetizetheirshares
⚫Ex.BSE,NYSE

16. BANKING
16

17. BANKING
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⚫Anyfinancialinstitutionlicensedtoacceptdepositsandissue
creditthroughloans
⚫Functions
⚫Channelizesavings
⚫Creditfacilitiestoborrower
⚫Investmentavenuesoinvestors
⚫Facilitatethetradeandcommercedealings
⚫Financial Inclusion
⚫Minimizecashtransactions
⚫Providefinancialservices
⚫Creationofmoneyintheeconomy
⚫Restrictsexpansionofblackmoney

18. STRUCTUREOF BANKINGSECTORININDIA
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19. CENTRALBANK
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⚫Banker’sbank
⚫Regulatortootherbanks
⚫Governmentsbank
⚫Providestablemonetaryandfinancialpolicy
⚫Decidespolicyrates-Impactsmoneyinthemarket
⚫Protectsrightsoftheconsumerbysupervisingbankinginstitution
⚫Monitorsinflowandoutflowofforeigncurrencies
⚫Clearinghousefacility
⚫Bankeroflastresort
⚫Ex.RBI

20. HOWDOBANKEARNPROFITS?
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⚫Differenceintherateofinterestbetweendepositorsandlenders
⚫Numberofproducts
⚫Throughinvestmentofitsresources
⚫Feebasedservices
⚫Netbanking
⚫Mobilebanking
⚫DemandDraft
⚫UniversalBanking
⚫Commercialaswellasinvestment bankingservicesunderoneroof

21. BASELFRAMEWORK
21
⚫BIS-BankofInternationalSettlement
⚫LocatedinBasel,Switzerland
⚫Fostersco-operationamongcentralbanksandotheragenciesin
pursuitofmonetaryandfinancialstability.
⚫Aforumtopromotediscussionandpolicyanalysisamongcentral
banksandwithintheinternationalfinancialcommunity
⚫Itsetsstandardsforbestpracticesinbankingwhichareensuredby
allbanks

22. SERVICES OFFEREDBYBANK
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1.Corporatebanking
1.TradeFinance
2.CashManagement
2.RetailBanking
1.Deposits
2.Branch&ElectronicBanking
3.Creditcardservices
4.RetailLending-Home, Personal,Car
5.Privatebanking&wealthManagement
6.BusinessbankingforSMEs
3.InvestmentBanking

23. RETAILBANKING
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⚫Servesfinancial needsofindividuals(Consumers)andSMEs
⚫Largevolumelowvaluetransactions
⚫Productsandservices
⚫Deposits
⚫Loans
⚫Creditcards
⚫Debitcards
⚫Investmentproducts
⚫Localbranches,ATMs
⚫NetBanking
⚫MobileBanking

24. ASSETSANDLIABILITIESINBANKING
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⚫Liabilities-Moneyreceivedbybankfromdepositors
⚫Asset-Loansextendedbybank
⚫Revenue-Moneythatismaidbyanorganizationinyear
⚫Liquidate-Tosellabusiness/propertyespeciallytopayoffdebt
⚫Asset-Reconstruction-Here, the right or interest of any bank or financial
institution in any financial asset is acquired by the asset re-construction company for
thepurpose ofrealizationof dues.
⚫NPA-Non-PerformingAsset(badloans)
⚫An asset of a bank (suchasa loangivenbythe bank)turns intoNPAwhen it
ceasesto generateregularincomesuchasinterestetcfor the bank
⚫BiggestchallengefacedbyIndianPublicsector banks
⚫Ex.Kingfisherowes7000croretoPSBs

25. DEPOSITPRODUCTS
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⚫DemandDeposits
⚫Depositedandwithdrawnondemand
⚫SavingandCurrent
⚫TermDeposit
⚫Moneykeptwiththebankforaspecifiedperiod
⚫FixedDeposit
⚫Attractivereturns
⚫Ensurecapitalavailabilityforbanks
⚫D-MATAccount
⚫Fortradingandofshares
⚫No-FrillAccounts
⚫Limitedservicesatalowcost
⚫Zerobalanceaccounts
⚫Jan-Dhanaccounts

26. RETAILCHANNELS
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27. BRANCHBANKING
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⚫TellerOperations
⚫Teller-Dealsdirectlywithconsumers
⚫Servesasfrontlineinbanking
⚫RelationshipManager
⚫BanksPOCtothecustomer
⚫Developstailoredbankingsolutionsforeachclient

28. COREBANKING/MULTI-BRANCHBANKING
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⚫Networkofbankwhichallowscustomerof abanktoperform
transactionatanybranchofthesamebank
⚫Geographicalconstraintsareremoved
⚫Branchcustomerbecomesbank’scustomer
⚫Thisisachievedthroughasetofsoftwarecalledbankingapplications
⚫Ex.Finacle(Infosys)

29. ATM
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⚫ComputerizedTelecommunicationDevice
⚫TypicalATMServices
⚫Cashwithdrawal–Limitperdayrestrictedbyrespectivebank
guidelines
⚫MoneyTransferbetweenaccounts
⚫Cash/CheckDeposits
⚫UtilityBillPayments
⚫Balanceenquiry/AccountStatements
⚫MobileTopUps
⚫VISA&MasternetworksarelargeglobalnetworksthatserviceATMs.
⚫Interbankoperationsaresettledinclearinghouse

30. TELEPHONEBANKING
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⚫Transactionsover phone
⚫Automatedphoneansweringsystems(IVR/VRU)withkeypadresponse
⚫Voicerecognitioncapability
⚫VRU-VoiceResponseUnit-AProgrammedcomputerrespondstocaller
⚫IVR-InteractiveVoiceResponse-Computerphoneapplicationwhich
acceptskeypad selectionandresponds

31. ONLINEBANKING
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⚫Financialtransactionsonasecurewebsiteoperatedbyrespectivebank
⚫Batchtransactions–operationsarecarriedoutwithleasthuman
intervention
⚫BillPayandRecurringpayments
⚫E-Tax
⚫Statements:Monthlyorquarterlybankstatements
⚫Transactionhistory
⚫Fundtransfer
⚫NEFT
⚫RTGS
⚫IMPS
⚫IFSC-IndianFinancialSystemCode
⚫isanalpha-numericcodethatuniquelyidentifiesabank-branch
participatingintheNEFTsystem.

32. FUNDTRANSFER
32
NEFT
⚫NationalElectronicFund
Transfer
⚫Notransactionlimit
⚫Notaimmediatemodeof
transferduringbanksworking
hoursonly.
RTGS
⚫RealTimeGrossSettlement
⚫Thereisminimumamountlimit
⚫Immediatemodeoftransfer
thoughduringworkinghoursof
bank

33. IMPS
33
⚫ImmediatePaymentService
⚫Instantmoneytransferthroughmobilephoneoronline
⚫Mobilenumberofremitterandbeneficiaryshouldbelinkedtotheir
respectivebankaccounts
⚫Bestwayfortransferringremittances
⚫MMID-Mobilemoneyidentifierisgenerated
⚫Thereisalimitonamountoftransaction
⚫SWIFT-SocietyforWorldwideInterbankFinancial
Telecommunications
⚫SWIFT transports messages between two financial institutions. This
activityinvolvesthesecureexchangeofproprietarydatawhileensuring its
confidentialityand integrity
⚫BIC-UsesBankIdentifierCode

34. INTERNATIONALBANKING
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⚫Facilitateimportsandexportsoftheirclients–tradefinancing
⚫Arrangeforforeignexchange–cross-bordertransactionsandforeign
investments
⚫Participateininternationalloansyndicate–lendingtoMNCs-project
financingandtosovereigngovernments–economicdevelopment
⚫Tradeforeignexchangeproductsfortheirownaccount
⚫Gatewayforthetransferofremittancesbyexpatriates

35. INVESTMENTBANKING
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⚫Functions
⚫PrivateEquity
⚫Buying/Selling
⚫CorporateAdvisory
⚫Managingcompanyassets
⚫CapitalRaising
⚫Underwriter
⚫Securitymiddlemen
⚫Longtermfinancing
⚫EmergingMarkets
⚫Merger&Acquisitions
⚫Ex.TechMahindra-Satyam,IGate-Patni,Facebook-Whatsapp

36. CARDSANDPAYMENTS
36
⚫Cards-Fastestgrowingmeansofnon-cashpayments
⚫Non-cashpaymentinstruments
⚫Cheque
⚫Debitcard
⚫Creditcard
⚫C0-Brandedcards-likecreditcardsassociatedwithaparticularfirm
⚫Affinitycard-Tie-upbetweenabankandanorganization
⚫Corporate/ Commercialcard
⚫Prepaidcard-giftcard,mallcards

37. EMERGINGPAYMENTS
37
⚫InternetCurrencies/Digitalcash/E-wallets
⚫Preloadaccountwithmoney
⚫Transfermoneyormakepayments
⚫Notimebarrier
⚫Noneedtoentercardcredentials
⚫Ex.Paytmwallet
⚫ContactlessPayments
⚫RadioFrequencyID
⚫NearFieldCommunication(NFC)
⚫Eliminateswipingcard,signingslipatthePOS
⚫Targetedateliminatingcashtransactionsatretailcounters

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40. MORTGAGE
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⚫Acustomerspersonalguaranteewiththelender
⚫Commonlyusedtorefertoloanforthepurposeofpurchasingproperty.
⚫CommercialMortgage
⚫Commercialbuildingasacollateral
⚫Loantakenbybusinesses
⚫ResidentialMortgage
⚫Residentialpropertyasacollateraltosecurerepayment.
⚫Loantakenbyindividualborrowers

41. MORTGAGEFLOW
41

42. ROLEOFINFORMATIONTECHNOLOGY (IT)IN
THE BANKING
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⚫Competitivenesscompeltoadapttolatesttechnologies
⚫Instrumentofcostreduction
⚫Effectivecommunicationwithpeopleand institutionsassociatedwith
thebankingbusiness.
⚫Bettermarketinfrastructure
⚫helpsthefinancialintermediariestoreachgeographicallydistantand
diversifiedmarketsinacosteffectivemanner

43. INSURANCE
43

44. ⚫Definition:Insuranceisdefinedastheequitabletransferoftherisk
ofalossfromoneentitytoanotherinexchangeforpayment
⚫Terminologies:
⚫Insurer:Insurancecompanysellingthepolicy
⚫Insured:Policyholderortheentityavailingthepolicy
⚫Re-Insurance:Insurancebyanotherinsurerofallorapartofarisk
previouslyassumedbyainsurancecompany
44

45. CONTINUED…
45
⚫Premium:Anamountchargedbyinsurerinordertocoverinsured
againstarisk
⚫Factorsdeterminingpremiumamount:
⚫TheFrequencyofClaims(howmany)
⚫TheSeverity(CostofeachClaim)
⚫Conditionofinsurer, kindofpolicy,probabilityofrisk,etc.
⚫Underwriter:Personwhoapprovesthepolicyanddeterminesthe
premiumtobechargedagainstacoverage.
⚫Claim:Requestbyinsuredinordertoseekpolicybenefitsfrominsurer
⚫Adjudicator:Onewhoprocessesorsettlestheclaims.

46. TYPESOFINSURANCE
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⚫LifeInsurance(LongTerm)
⚫Non-LifeInsurance(ShortTerm)
⚫
⚫
⚫

47. CATEGORYOFINSURANCE
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⚫Dental
⚫Health
⚫Life
⚫Business
⚫Residential
⚫Transport/Communication
⚫Other

48. INSURANCEPROCESSES
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BranchesofInsurancecompany
1)
2)
3)
4)
5)
6)
7)
Policy Administration Systems
Claim Management System
Investment Management System
ThirdPartyAdministrationSystems
RiskManagement Solutions
Regulatory& Compliance
ActuarialSystem(Valuation&Pricing)

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