MB18FM02

MANAGING BANKS
AND FINANCIAL
INSTITUTIONS
UNIT I - Indian Banking Structure
Structure of Financial system –Indian Banking Structure– Electronic Banking––
Functions of Reserve Bank of India – Role of RBI – Monetary policy of RBI –
features of monetary control along with its Recent policy development
 
UNIT II - Overview of Lending Products
Lending Products– Loans and Advances–Priority Sector Lending–Banking Sector
Reforms and NPA’s–Principles of Sound Lending–Methods of Granting
Advances–Loan Appraisal Process–Corporate Loan Cycle

UNIT III - Investment Banking and Wealth Management

Introduction to Investment Banking–Concept of Wealth Management–Measuring
Investment returns in Wealth Management–Investment Vehicles for Wealth
Management–Managing Investment risk in Wealth Management
 
UNIT IV - Risk Management
Introduction to Risk Management–Meaning of Risk–How risk is
Managed–Limitations of Risk Management–Corporate Risk
Management–Risk Management in Banks–Managing Risks in
International Transactions

UNIT V - Innovations and recent trends in Banking

Information Technology and its Usage in Banking Industry –
Electronic Payment Services–eCheques–RTGS–EFT–ECS–Point of
sale Terminal–Electronic Data Interchange(EDI)
 The word "system", in the term "financial system",
implies a set of complex and closely connected or
interlined institutions, agents, practices, markets,
transactions, claims, and liabilities in the economy.
 The financial system comprises of a variety of
intermediaries, market, and instruments. It provide
the principal means by which savings are
transformed into investments.
The economic development of any country depends
upon the well organised financial system
Financial system is a system which supplies the
necessary financial inputs for the production of
goods and service to improve the standard of life
and well being of the nation.
Financial system are of crucial significance to capital
formation. The process of capital formation involves three
distinct, although inter-related activities.
 Saving : the ability by which claims to resources are
set
aside and become available for the other purpose.
 Finance : The activity by which claims to resources are
either assembled from those released by domestic
savings, obtained from abroad etc.
 Investments : the activity by which resources
are actually committed to production.
1. Payment system
2. Pooling of funds
3. Transfer resources
4. Risk management
5. Price information for decentralised
decision making
6. Dealing with incentive problem
7. Reformatory function
• Financial institutions are the participants in a financial
market.
• They are business organizations dealing in financial
resources.
• They collect resources by accepting deposits from
individuals and institutions and lend them to
trade, industry and others.
• On the basis of the nature of activities, financial
institutions may be classified as:
•Regulatory and promotional institutions,
•Banking institutions, and
•Non-banking institutions
 Financial institutions, financial markets, financial
instruments and financial services are all regulated by
regulators like Ministry of Finance, the Company Law
Board, RBI, SEBI, IRDA, Dept. of Economic Affairs,
Department of Company Affairs etc.
(b) Banking Institutions:
Banking institutions mobilise the savings of the people.
They provide a mechanism for the smooth exchange of goods and
services. They extend credit while lending money. They not only
supply credit but also create credit. There are three basic
categories of banking institutions. They are commercial banks, co-
operative banks and developmental banks.
(c) Non-banking Institutions:
The non-banking financial institutions also mobilize financial
resources directly or indirectly from the people. Companies like LIC,
GIC, UTI, Development Financial Institutions, Organisation of
Pension and Provident Funds etc. fall in this category. Non-banking
financial institutionscan be categorized as investment companies,
housing companies, leasing companies, hire purchase
companies, specialized financial institutions.
 CLASSIFICATION OF
Markets
FINANCIAL
 Classification on the basis of the type of
financial claim
Debt market
Equity
market
 Classification on the basis of maturity of
claims Money market
Capital market
 Classification on the basis of seasoning
of
claim Primary market
 Classification on the basis of structure or
arrangements
Organised markets
Unorganised markets
 Classification on the basis of timing of
delivery
Cash / Spot market
Forward/Future market
 Other types of financial
market Foreign
exchange market
Derivatives market
 Financial instruments are the financial assets,
securities and claims. They may be viewed as
financial assets and financial liabilities.
 Financial assets represent claims for the payment of
a sum of money sometime in the future (repayment
of principal) and/or a periodic payment in the form
of interest or dividend.
 Financial assets like deposits with banks, companies
and post offices, insurance policies, NSCs, provident
funds and pension funds are not tradable.
 Securities (included in financial assets) like equity
shares and debentures, or governmentsecurities
and bonds are tradable. Hence they are
transferable.
 The financial instruments may be capital
market instruments or money market
instruments or hybrid instruments.
 The financial instruments that are used for
raising capital through the capital market are
known as capital market instruments.
 The financial instruments that are used for
raising and supplying money in a short
period not exceeding one year through
money market are called money market
instruments.
 Hybrid instruments are those instruments
which have both the features of equity and
debenture. Examples are convertible
debentures, warrants etc.
 CHARACTERISTICS OF
FINANCIAL
a. Liquidity INSTRUMENTS
b. Marketing
c. Collateral value
d. Transferability
e. Maturity period.
f. Transaction costs.
g. Risk
h. Future trading
 Its objective is to intermediate and facilitate
financial transactions of individuals and
institutional investors
 The financial services include all
activities connectedwith the
transformation of savings into
investment.
 Important financial services include lease
financing, hire purchase, instalment payment
systems, merchant banking, factoring,
forfaiting etc.
1.HIRE PURCHASE
•an intention to finance consumers towards vehicles, white
SERVICES
 Hire purchase
goods
with
etc. If athe legal
buyer termafford
cannot for atoconditional sale
pay the price as contract
a lump
sum but can afford to pay a percentage as a deposit, the
contract allows the buyer to hire the goods for a monthly rent.
•2. Leasing Services

 A lease or tenancy is a contract that transfers the right to

possess specific property. Leasing service includes the leasing
of assets to other companies either on operating lease or finance
lease.
 Housing Finance Services means financial services related to
development and construction of residential and commercial
properties. An Housing Finance Company approved by the National
Housing Bank may undertake the services /activities such as
Providing long term finance for the purpose of constructing,
purchasing or renovating any property etc.
4. Asset Management Company
Asset Management Company is managing and investing
the pooled funds of retail investors in securities in line with the
stated investment objectives and provides more diversification,
liquidity, and professional management service to the individual
investors. Mutual Funds are comes under this category.
5. Venture Capital Companies
Venture capital Finance is a unique form of financing
activity that is undertaken on the belief of high-risk-high-return.
Venture capitalists invest in those risky projects or companies
(ventures) that have success potential and could promise
sufficient return to justify such gamble.
WEAKNESSES OF INDIAN FINANCIAL
SYSTEM

 Lack of co-ordination among financial

institutions
 Dominance of development banks in
industrial finance
 Inactive and erratic capital market
 Unhealthy financial practices
 Monopolistic market structures
 Book - “Indian Financial System”
Author – M Y Khan
 Book – “Financial Management”
Author - Prasanna Chandra
 Site -
http://www.universityofcalicut.info/SDE/BCom
_indian_financial_system.pdf