Central Bank• Central bank is responsible for regulating the banking system of a nation.• It is essentially a banker to banks as well as banker to the Government.• Central bank also is responsible for the monetary and credit policies of the economy.• Central bank issues currency notes for the country and oversees the movement of currency value in relation to other country’s currency value.
Reserve Bank of India• The Reserve Bank of India Act, 1934 established Reserve Bank as the Central bank of India.• Regulator and Supervisory authority of the monetary policy of India.• Supervises the financial system of the Indian economy.• Issues Indian currency note (Rupee)• Ensures stability and management of interest rate in the economy and exchange rates in an international setting.• Regulates and supervises the payment and settlement systems in the economy.
Role of Reserve Bank of India• Developing financial institutions and markets.• Promoting banking activities.• Ensuring safety of depositors’ funds in the banking system.• Provide the supply of currency and credit for the economy.• Manage Government debt.• Encourage financial inclusion in the society.• Encourage developmental functions in the economy.
Primary Functions of Commercial Banks• Accepting deposits • Surplus income and savings are mobilized as short-term and long-term deposits for specified interest rates.• Providing loans and advances • Fund needs of the society (individuals and business establishments) are met through the loans and advances at specified interest rates. • Loans are long term fund assistance. • Advances are short term fund assistance such as cash credit, overdraft, discounting of bills.
Secondary Functions of Commercial Banks• Safe custody of valuables.• Providing foreign exchange.• Transfer of money.• Providing guarantee and letters of credit.• Providing business support services such as providing business information, credit reports etc.
Investment Banks• Corporate financial advisory and investment service providers.• Assist financial markets and provide capital intermediation services.• Provide consultancy, market research and broking services to assist high net worth individuals and other entities in their investment goals.• Develop ventures through project finance to support fund needs and export finance to meet international trade ventures.
Functions of Investment Banks• Services for individuals• Maintain financial accounts• Provide loans, lease and mortgages• Pension management• Investment management• Private banking• E-banking
Functions of Investment Banks• Services for business firms and institutions• Corporate advisory services• Investment management of institutional investors• Asset management services• Industry analysis and research• Information provision• Merger and amalgamation activities• Valuation services
Development Banks and Specialized Banks• Specialized development financial institutions.• Providers of long-term funds to economic sectors experiencing shortage of funds.• Substantiate and bridge market gaps in developing economies.
Illustrative Development Banks• Industrial Development Bank of India (IDBI)• Industrial Finance Corporation of India (IFCI).• National Bank for Agriculture and Rural Development (NABARD)• Export Import Bank of India (EXIM Bank)• National Housing Bank (NHB)• Small Industries Development Bank of India (SIDBI)• Infrastructure Development Finance Company (IDFC)• Industrial Investment Bank of India (IIBI)• State Finance Corporations (SFCs)
Co-operative Banks• Established for the purpose of providing funds for non- agricultural purposes.• These banks were formed by local communities, local geographical groups or work groups.• Based on the principles of cooperation that implies mutual help, open membership and participative decisions.
Types of Co-operative Banks• State Co-operative Banks. • Apex body of co-operative banks in a state.• Central / District Co-operative Banks. • Established at the district level and report to the State Co-operative Banks.• Primary Co-operative Banks. • Located in urban or semi-urban areas catering to the business needs of the locality. • Located in rural areas to meet the funding needs of the community / work group / area.
Non Banking Finance Companies• Non Banking Financial Companies offer a wide range of services such as hire purchase finance, lease finance and investment services.• They provide financial intermediation and have expanded their products profile.• The Reserve Bank of India working group on Financial Companies introduced registration of such companies with net owned funds (NOF) of Rupees 5 million or above.
Types of NBFCs• NBFCs accepting deposits• NBFCs not accepting deposits but rendering financial intermediation services• NBFCs that are investment companies (90% or more of their total assets are in the form of investment in securities of their group / holding / subsidiary companies)
Mutual Funds• Mutual funds are capital market intermediaries.• Mutual funds are established as trust entities.• Mobilize money in the form of units and invest them in portfolios to meet risk-return expectations of investors.• Mutual fund returns are shared among unit holders.
Microfinance Institutions• Small scale financial service providers.• Financial services are provided to low-income households and enterprises.• Microfinance is provided by alternate sector such as Non Government Organizations (NGOs), Self Help Groups (SHGs).
Microfinance Business Models• Joint Liability Group. • The group who are co-guarantors for other members of the group.• Linkage with Banks. • SHGs coordinate with bank in microfinance activities.
Risk ManagementMeasurement and management of banking risks in aregulated environment• Credit risk• Liquidity risk• Market risk• Operational risk• System risk
Risk Management in Banks• Technology driven• Model driven• Capital adequacy to absorb risk• Dynamic strategies• Integration of risk management process• Risk based bank audit and supervision• Supportive legal environment