Agenda I Introduction to Banking II Introduction to Retail Banking III Banking Terminology IV CASA V Time Deposits VI Loans VII Remittances VIII Non-Branch Delivery Channels IX Audit and Supervision X Software Expectations XI Wrap-Up

I Introduction to Banking

II Introduction to Retail Banking

III Banking Terminology

IV CASA

V Time Deposits

VI Loans

VII Remittances

VIII Non-Branch Delivery Channels

IX Audit and Supervision

X Software Expectations

XI Wrap-Up

Introduction to Banking

Banks Role of Intermediary Banks and “Banking” Functions Competitors to Banks “ Disintermediation” Changing Role of Banks Towards a Financial Supermarket...

Role of Intermediary

Banks and “Banking” Functions

Competitors to Banks

“ Disintermediation”

Changing Role of Banks

Towards a Financial Supermarket...

What is Banking Borrowing and safe keeping of money Lending of money Transmitting of money Exchanging of money Exchange of financial information

Borrowing and safe keeping of money

Lending of money

Transmitting of money

Exchanging of money

Exchange of financial information

BANKING FRAMEWORK Retail Banking CASA, Deposits, Loans, Credit Cards, FX, Remittances, Securitization Corporate Banking Trade Finance, Project Finance, Bills, LCs, Guarantees, Syndicated Financing Investment Banking FX, Money Markets, Securities, Leasing, Factoring

Retail Banking

CASA, Deposits, Loans, Credit Cards, FX, Remittances, Securitization

Corporate Banking

Trade Finance, Project Finance, Bills, LCs, Guarantees, Syndicated Financing

Investment Banking

FX, Money Markets, Securities, Leasing, Factoring

Private Banking Trusts, Portfolio Management Fiduciary Services Pensions, Custody Services, Will & Estate Management Other services Correspondent Banking, Safe deposit Vaults, Insurance, Travel, Bill Payment, Tax Counselling BANKING FRAMEWORK-2

Private Banking Trusts, Portfolio Management

Fiduciary Services

Pensions, Custody Services, Will & Estate Management

Other services Correspondent Banking, Safe deposit Vaults, Insurance, Travel, Bill Payment, Tax Counselling

Retail VS Wholesale Banking Retail Banking Wholesale Banking Focus On Individual Customers Focus On Large Corporate Entities Wide Branch Network Limited Branch Networking Variety Of Services Available Focus On Smaller Customer Base

Retail Banking Wholesale Banking

Focus On Individual Customers Focus On Large Corporate Entities

Wide Branch Network Limited Branch Networking

Variety Of Services Available Focus On Smaller Customer Base

Money Multiplier Effect Money supply creation by Banks Need to regulate and control Methodology of regulation

Money supply creation by Banks

Need to regulate and control

Methodology of regulation

Customer and the Bank Who is a “Customer” Customer Confidentiality “Ownership” of Accounts Precaution against “Conversion” and “Frauds” Legal Responsibility to prevent Money Laundering Breaking country’s Laws

Who is a “Customer”

Customer Confidentiality

“Ownership” of Accounts

Precaution against “Conversion” and “Frauds”

Legal Responsibility to prevent Money Laundering Breaking country’s Laws

Bank-Client Relationship “ Good Faith” Banker’s General Right of Lien Rights of Set -Off “ Estoppel” Confidentiality Disclosure Under Laws of the Land Full Disclosure of Terms and Conditions of Relationship Can bank Discriminate between Customers in Treatment?

“ Good Faith”

Banker’s General Right of Lien

Rights of Set -Off

“ Estoppel”

Confidentiality

Disclosure Under Laws of the Land

Full Disclosure of Terms and Conditions of Relationship

Can bank Discriminate between Customers in Treatment?

Interest Accrual Capitalization Accrual Frequency Capitalization Frequency Interest Methods Monthly Minimum, Daily Balance, Average Balance,... Interest Basis 30/360, Actual/Actual, Actual/360,... Withholding tax, Interest tax deduction

Accrual

Capitalization

Accrual Frequency

Capitalization Frequency

Interest Methods

Monthly Minimum, Daily Balance, Average Balance,...

Interest Basis

30/360, Actual/Actual, Actual/360,...

Withholding tax, Interest tax deduction

Bank Accounting Peculiarities “Window Dressing” Income Recognition NPA Classification International Accountancy Rules Capital Adequacy Deposit Risk Cover Protection Banks’ Books of Accounts

Bank Accounting Peculiarities

“Window Dressing”

Income Recognition

NPA Classification

International Accountancy Rules

Capital Adequacy

Deposit Risk Cover Protection

General Ledger General Ledger and Subsidiary Ledger Central Bank Reporting Multi-Currency Treatment Treatment of Inter-Branch Transactions Treatment of Suspense Accounts, Entries External General Ledger

General Ledger and Subsidiary Ledger

Central Bank Reporting

Multi-Currency Treatment

Treatment of Inter-Branch Transactions

Treatment of Suspense Accounts, Entries

External General Ledger

Lending of Money Statutory controls on lending Principles of sound lending Purposes Periods Types of lending Security for advances

Statutory controls on lending

Principles of sound lending

Purposes

Periods

Types of lending

Security for advances

Principles of Sound Lending Borrower Character Capital Capability Bank Safety of funds Spread of risk Liquidity of funds Profitability Viability of the scheme

Borrower

Character

Capital

Capability

Bank

Safety of funds

Spread of risk

Liquidity of funds

Profitability

Viability of the scheme

Traditional Banking... Competition, Disintermediation and Diminishing Spreads Movement towards Fee-income Technology Driving Banking, Banking Driving Technology Market Place crowded, Mixed, Technology-driven

Competition, Disintermediation and Diminishing Spreads

Movement towards Fee-income

Technology Driving Banking, Banking Driving Technology

Market Place crowded, Mixed, Technology-driven

Types of lending Fund based Term Loans Cash Credit / Overdraft Purchase & Discount of Bills (inland & foreign) Non Fund based Letters of credit Guarantee Bills Co-acceptance

Fund based

Term Loans

Cash Credit / Overdraft

Purchase & Discount of Bills (inland & foreign)

Non Fund based

Letters of credit

Guarantee

Bills Co-acceptance

Term Loans Fixed Amount For purchase of fixed assets Payable in suitable installments in lump sum (principal + interest) Usually Secured

Fixed Amount

For purchase of fixed assets

Payable

in suitable installments

in lump sum (principal + interest)

Usually Secured

Cash Credits & Overdrafts Running accounts Drawings fluctuate within a pre-determined band As many drawals as necessary Interest charged on daily balances Cash credit : Usually secured Overdraft : Could be secured or unsecured

Running accounts

Drawings fluctuate within a pre-determined band

As many drawals as necessary

Interest charged on daily balances

Cash credit : Usually secured

Overdraft : Could be secured or unsecured

Bills : Purchase & Discount BILLS INLAND FOREIGN DEMAND USANCE DOCUMENTARY CLEAN

Types of Bills Demand Bills Payable on demand or At sight or On presentment or No time for payment specified Usance Bills Payable on the expiry of a certain period after date or sight

Demand Bills

Payable on demand or At sight or

On presentment or

No time for payment specified

Usance Bills

Payable on the expiry of a certain period after date or sight

Types of Bills Clean Bill Unaccompanied by any other allied documents eg : Cheques, Warrants Trade bills without the relative document evidencing dispatch of goods Unsecured. Can be Sight or usance Documentary Bill Accompanied by document of title to goods Secured/Unsecured: Secured/Unsecured

Clean Bill

Unaccompanied by any other allied documents

eg : Cheques, Warrants

Trade bills without the relative document evidencing dispatch of goods

Unsecured. Can be Sight or usance

Documentary Bill

Accompanied by document of title to goods

Secured/Unsecured: Secured/Unsecured

Advantages of Bill Business Definite date of repayment Re-discounting facilities Stability of value High profitability Greater legal protection

Definite date of repayment

Re-discounting facilities

Stability of value

High profitability

Greater legal protection

Bill Transactions Collection Purchase & Discount Negotiation

Collection

Purchase & Discount

Negotiation

Letters of Credit Issuing bank undertakes to make payment to the beneficiary of the LC against presentation of specified documents Beneficiary is assured of payment No immediate outflow of funds Parties to a credit Applicant (buyer) Beneficiary (seller) Issuing bank

Issuing bank undertakes to make payment to the beneficiary of the LC against presentation of specified documents

Beneficiary is assured of payment

No immediate outflow of funds

Parties to a credit

Applicant (buyer)

Beneficiary (seller)

Issuing bank

Guarantees To perform the promise or discharge the liability of a third party in case of his default Three parties Guarantor / Surety (banker) Principal Debtor (on whose behalf) Principal Creditor (in whose favour) Financial Guarantee Performance Guarantee Deferred payment guarantee No immediate outflow of funds

To perform the promise or discharge the liability of a third party in case of his default

Three parties

Guarantor / Surety (banker)

Principal Debtor (on whose behalf)

Principal Creditor (in whose favour)

Financial Guarantee

Performance Guarantee

Deferred payment guarantee

No immediate outflow of funds

Related Services Merchant banking Counselling corporate clients on Capital structure Form of capital to be raised Terms & conditions of the issue Under writing of the issue Timing of the issue Preparation of the prospectus Raising of long term loans

Merchant banking

Counselling corporate clients on

Capital structure

Form of capital to be raised

Terms & conditions of the issue

Under writing of the issue

Timing of the issue

Preparation of the prospectus

Raising of long term loans

Related Services (contd...) Trustee, executor, & admin services To handle Investments / estates / properties Distribution after death To act as guardian of a minor’s property To administer public trusts

Trustee, executor, & admin services

To handle

Investments / estates / properties

Distribution after death

To act as guardian of a minor’s property

To administer public trusts

Factoring Factor maintains the trade debts of the client company Maintains sales ledger Issues invoices Collects payments Credit protection Factor assumes responsibility for trade debts, due to the client company Factor advances a proportion of the trade debts immediately and the balance on maturity of the debts Improves client's liquidity Related Services

Factoring

Factor maintains the trade debts of the client company

Maintains sales ledger

Issues invoices

Collects payments

Credit protection

Factor assumes responsibility for trade debts, due to the client company

Factor advances a proportion of the trade debts immediately and the balance on maturity of the debts

Improves client's liquidity

Clearing House Operations Outward clearing Inward clearing Returns- outward clearing Returns- Inward clearing Re-presentations Time factor Reconciliation

Outward clearing

Inward clearing

Returns- outward clearing

Returns- Inward clearing

Re-presentations

Time factor

Reconciliation

Automated Clearing House Electronic clearing Paperless transfers of funds Settlement

Electronic clearing

Paperless transfers of funds

Settlement

Foreign Exchange FX Market Exchange rates Risks Revaluation Mark to the market Risk management

FX Market

Exchange rates

Risks

Revaluation

Mark to the market

Risk management

Legal aspects in Banking Customer Types of legal relationships Duties and obligations Rights and remedies Confidentiality Law relating to Limitations Disclosure regulations in Accounts

Customer

Types of legal relationships

Duties and obligations

Rights and remedies

Confidentiality

Law relating to Limitations

Disclosure regulations in Accounts

Law and Banking Application of Law Jurisdiction Civil laws Criminal laws Law of limitation

Application of Law

Jurisdiction

Civil laws

Criminal laws

Law of limitation

Supervision of Banks “Central” Bank of the country Degrees of supervision Modes of Supervision Audit and self-regulation Importance of proper supervision Cross-country regulation of Banks

“Central” Bank of the country

Degrees of supervision

Modes of Supervision

Audit and self-regulation

Importance of proper supervision

Cross-country regulation of Banks