Banking domain presentation

Banking, financial services and insurance

1. INTRODUCTION TO BFSI - Yogeshwar N. tompe 1

2. An Investment in Knowledge always Pays the best Interest- benjamin Franklin 2

3. FEW OF THE GIANTS IN BANKING International and Commercial Bank of China Assets of this Chinese bank are more than the entire banking sector of India! Assets = 3616 (US$ billion) INR= 239789435200000 3

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5. WHAT IS A DOMAIN? Sector of economy for which AUT is being developed. Insurance Banking Life sciences Telecommunication E-Commerce Game Application etc. 5

6. ADVANTAGES OF DOMAIN KNOWLEDGE Reduces the training time Knowledge of functional flow chart (work flow, business process & rules) Good Idea on UI features Helps in writing precise and accurate test cases Those hoping for the position of ‘ Business Analyst’ at the earliest must need a strong command on domain knowledge 6

7. OBJECTIVE Provide an overview of Banking Domain Enable Technology people understand Financial Terms Explain Operations in specific lines of banking Cover Global Banking Practices Introduce some of the recent developments in banking 7

8. KEYWORDS Concept of money Financial Instruments Financial Statements Introduction to Banking Retail Banking Consumer Lending Cards and Payments Commercial and Wholesale Banking Investment banking Investment Management Settlement Corporate Services Insurance 8

9. MONEY Standard unit of Exchange- advancement over barter system Currencies-based upon development level of countries Exchange Rates- Who decides, Pegged currencies Face value of currency Standard Value currency Interest charged on loan amount- Simple and Compound Simple - On Rs.100 by 10 per cent, amount paid every year is Rs. 10 Compound - On Rs.100 by 10 per cent, amount paid every year varies 9

10. INFLATION Rise in cost of goods and services over a period Real rate of interest = Nominal rate of Interest-Inflation Rate Nominal rate of interest = 10% Inflation rate 4% Real rate of interest = 6% Increase in Prices reduces the value of currency 10

11. COST OF CAPITAL Land, Labor, CAPITAL , Enterprise(Idea) Depends upon- Borrower, type of financing, market timing, collateral, tenure for debt Cost of capital include following Interest for debt Dividend, expected earning for equity WACC - Weighted Average Cost of Capital- If more than one source of finance is used. WACC= Cost of each*Weight 11

12. FINANCIAL INSTRUMENTS Capital - Business needs capital for operations, fixed assets. Methods by which capital can be raised Debt Bank Loans Bond/Debentures: Fixed, Floating-rating, Corporate, Govt. Equity Owners equity Venture Capital IPOs Mutual Funds 12

13. … CONTINUED Derivatives Forwards Future Options 13

14. DEBT Money owed by one entity to other Cost is interest Debt is considered senior to equity i.e. the interest on debt is paid before the dividends on stock in case of liquidation of assets Examples- Bonds, Loan, Commercial papers Investors chose between debt and equity based on their investment objectives 14

15. BONDS An investor loans money to an entity at a specific interest rate. Small deposits from multiple people Investment ceiling Interest is generally paid semiannually Factors influencing coupon rate Prevailing economic conditions Issuers Credit rating (risk) In return investor gets the bond/certificate which contains: Interest rate (Coupon rate) Maturity date (Repayment date ) Face amount 15

16. … CONTINUED Corporate bond Secured bonds- backed by specific assets Unsecured bonds (Debentures) Treasury Securities (Government agencies) Treasury bills-Short term Treasury bonds-Long term Most secure bonds 16

17. EQUITY Equity (Stock)- represents ownership interest Common Stock Voting Rights Majority shareholders manage organization Popular Corporations sells it through IPO Can be traded in secondary markets-BSE, NYSE etc. Preferred Stock No voting rights Fixed rate of return 17

18. MUTUAL FUNDS Investment companies Pool resources from individual investors MF companies invest into diverse sector of economy Investors are equally responsible for loss or gain Dividends earned are distributed according to the investment Hedge Fund A group of investors who take financial risks together in order to try to earn a lot of money 18

19. DERIVATIVES It is a contract between two or more parties Obligation on buyer and seller Forward Agreement to buy/sell an asset in future at a specified price Ex. MCX Future Agreement to buy/sell an asset in future at a future price 19

20. FINANCIAL MARKETS Place where financial instruments are traded Primary Financial Markets New financial instruments are issued Initial Public Offering Secondary Financial Markets Primary instruments (Shares) are traded Investors can monetize their shares Ex. BSE, NYSE 20

21. BANKING 21

22. BANKING Any financial institution licensed to accept deposits and issue credit through loans Functions Channelize savings Credit facilities to borrower Investment avenues o investors Facilitate the trade and commerce dealings Financial Inclusion Minimize cash transactions Provide financial services Creation of money in the economy Restricts expansion of black money 22

23. STRUCTURE OF BANKING SECTOR IN INDIA 23

24. CENTRAL BANK Banker’s bank Regulator to other banks Governments bank Provide stable monetary and financial policy Decides policy rates-Impacts money in the market Protects rights of the consumer by supervising banking institution Monitors inflow and outflow of foreign currencies Clearing house facility Banker of last resort Ex. RBI 24

25. HOW DO BANK EARN PROFITS? Difference in the rate of interest between depositors and lenders Number of products Through investment of its resources Fee based services Net banking Mobile banking Demand Draft Universal Banking Commercial as well as investment banking services under one roof 25

26. BASEL FRAMEWORK BIS - Bank of International Settlement Located in Basel, Switzerland Fosters co-operation among central banks and other agencies in pursuit of monetary and financial stability. A forum to promote discussion and policy analysis among central banks and within the international financial community It sets standards for best practices in banking which are ensured by all banks 26

27. SERVICES OFFERED BY BANK Corporate banking Trade Finance Cash Management Retail Banking Deposits Branch & Electronic Banking Credit card services Retail Lending- Home, Personal, Car Private banking & wealth Management Business banking for SMEs Investment Banking 27

28. RETAIL BANKING Serves financial needs of individuals (Consumers) and SMEs Large volume low value transactions Products and services Deposits Loans Credit cards Debit cards Investment products Local branches, ATMs Net Banking Mobile Banking 28

29. ASSETS AND LIABILITIES IN BANKING Liabilities- Money received by bank from depositors Asset- Loans extended by bank Revenue- Money that is maid by an organization in year Liquidate- To sell a business/property especially to pay off debt 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 the purpose of realization of dues. NPA- Non-Performing Asset (bad loans) An asset of a bank (such as a loan given by the bank) turns into NPA when it ceases to generate regular income such as interest etc for the bank Biggest challenge faced by Indian Public sector banks Ex. Kingfisher owes 7000 crore to PSBs 29

30. DEPOSIT PRODUCTS Demand Deposits Deposited and withdrawn on demand Saving and Current Term Deposit Money kept with the bank for a specified period Fixed Deposit Attractive returns Ensure capital availability for banks D-MAT Account For trading and of shares No-Frill Accounts Limited services at a low cost Zero balance accounts Jan- Dhan accounts 30

31. RETAIL CHANNELS 31

32. BRANCH BANKING Teller Operations Teller- Deals directly with consumers Serves as front line in banking Relationship Manager Banks POC to the customer Develops tailored banking solutions for each client 32

33. CORE BANKING/MULTI-BRANCH BANKING Network of bank which allows customer of a bank to perform transaction at any branch of the same bank Geographical constraints are removed Branch customer becomes bank’s customer This is achieved through a set of software called banking applications Ex. Finacle(Infosys) 33

34. ATM Computerized Telecommunication Device Typical ATM Services Cash withdrawal – Limit per day restricted by respective bank guidelines Money Transfer between accounts Cash / Check Deposits Utility Bill Payments Balance enquiry /Account Statements Mobile Top Ups VISA & Master networks are large global networks that service ATMs. Interbank operations are settled in clearing house 34

35. TELEPHONE BANKING Transactions over phone Automated phone answering systems(IVR/VRU) with keypad response Voice recognition capability VRU - Voice Response Unit-A Programmed computer responds to caller IVR - Interactive Voice Response-Computer phone application which accepts keypad selection and responds 35

36. ONLINE BANKING Financial transactions on a secure website operated by respective bank Batch transactions – operations are carried out with least human intervention Bill Pay and Recurring payments E-Tax Statements : Monthly or quarterly bank statements Transaction history Fund transfer NEFT RTGS IMPS IFSC- Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEFT system . 36

37. FUND TRANSFER NEFT RTGS National Electronic Fund Transfer No transaction limit Not a immediate mode of transfer during banks working hours only. Real Time Gross Settlement There is minimum amount limit Immediate mode of transfer though during working hours of bank 37

38. IMPS Immediate Payment Service Instant money transfer through mobile phone or online Mobile number of remitter and beneficiary should be linked to their respective bank accounts Best way for transferring remittances MMID- Mobile money identifier is generated There is a limit on amount of transaction SWIFT - Society for Worldwide Interbank Financial Telecommunications SWIFT transports messages between two financial institutions. This activity involves the secure exchange of proprietary data while ensuring its confidentiality and integrity BIC - Uses Bank Identifier Code 38

39. INTERNATIONAL BANKING Facilitate imports and exports of their clients – trade financing Arrange for foreign exchange – cross-border transactions and foreign investments Participate in international loan syndicate – lending to MNCs- project financing and to sovereign governments – economic development Trade foreign exchange products for their own account Gateway for the transfer of remittances by expatriates 39

40. INVESTMENT BANKING Functions Private Equity Buying/Selling Corporate Advisory Managing company assets Capital Raising Underwriter Security middlemen Long term financing Emerging Markets Merger & Acquisitions Ex. TechMahindra-Satyam, IGate-Patni, Facebook-Whatsapp 40

41. CARDS AND PAYMENTS Cards- Fastest growing means of non-cash payments Non-cash payment instruments Cheque Debit card Credit card C0-Branded cards- like credit cards associated with a particular firm Affinity card-Tie-up between a bank and an organization Corporate/ Commercial card Prepaid card- gift card, mall cards 41

42. EMERGING PAYMENTS Internet Currencies/Digital cash/E-wallets Preload account with money Transfer money or make payments No time barrier No need to enter card credentials Ex. Paytm wallet Contactless Payments Radio Frequency ID Near Field Communication(NFC) Eliminate swiping card, signing slip at the POS Targeted at eliminating cash transactions at retail counters 42

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45. MORTGAGE A customers personal guarantee with the lender Commonly used to refer to loan for the purpose of purchasing property. Commercial Mortgage Commercial building as a collateral Loan taken by businesses Residential Mortgage Residential property as a collateral to secure repayment. Loan taken by individual borrowers 45

46. MORTGAGE FLOW 46

47. ROLE OF INFORMATION TECHNOLOGY (IT) IN THE BANKING Competitiveness compel to adapt to latest technologies Instrument of cost reduction Effective communication with people and institutions associated with the banking business. Better market infrastructure helps the financial intermediaries to reach geographically distant and diversified markets in a cost effective manner 47

48. Insurance 48

49. Definition: Insurance is defined as the equitable transfer of the risk of a loss from one entity to another in exchange for payment Terminologies: Insurer: Insurance company selling the policy Insured: Policy holder or the entity availing the policy Re-Insurance: Insurance by another insurer of all or a part of a risk previously assumed by a insurance company 49

50. CONTINUED… Premium: An amount charged by insurer in order to cover insured against a risk Factors determining premium amount: The Frequency of Claims (how many) The Severity (Cost of each Claim) Condition of insurer, kind of policy, probability of risk, etc. Underwriter: Person who approves the policy and determines the premium to be charged against a coverage. Claim : Request by insured in order to seek policy benefits from insurer Adjudicator: One who processes or settles the claims . 50

51. TYPES OF INSURANCE Life Insurance (Long Term) Non-Life Insurance (Short Term) By the Law of Insurance in USA Unemployment Insurance Social Security Worker’s Compensation 51

52. CATEGORY OF INSURANCE Dental Health Life Business Residential Transport/Communication Other 52

53. INSURANCE PROCESSES Branches of Insurance company Policy Administration Systems Claim Management System Investment Management System Third Party Administration Systems Risk Management Solutions Regulatory & Compliance Actuarial System (Valuation & Pricing) 53

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59. Thank You 59 Plant trees & save water for the sustainability of earth AND save baby girl for the sustainability of human race.