Bank deposits


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Bank deposits

  1. 1. Bank Deposits• Deposits – It is a major source of funds for banks• Types of Deposits – Demand Deposit – Time Deposit• Demand Deposits further sub-divided – Current Deposit – Saving Deposit
  2. 2. Pricing of the deposits• Banks need to monitor the cost of their funding sources because of – Change in cost of funding would require changes in assets yield – It can alter liability mix and liquidity – It will affect competitiveness of the bank in the market
  3. 3. Factors to be considered while deciding pricing of deposits• Service cost and minimum balance requirement• Deposit volume• Lending and investment avenues• Relationship with customer• In case of new product, promotional pricing• Product differentiation
  4. 4. Factors affecting bank deposits• Increase in national income• Expansion of banking facility• Increase of banking habit• Increase in the relative rate of return on deposit• Increase in deficit financing• Increase in bank credit• Inflow of deposits from NRIs
  5. 5. Measures to increase bank deposits• Offering properly graded interest rate on term and saving deposit• Raising deposit insurance cover• Discontinuing TDS in respect of interest income from deposits• Improving internal efficiency and reducing bad debts and frauds• Improving customer service
  6. 6. General guide lines for opening deposit accounts• “Know Your Customer” guidelines issued by RBI to be followed• The objective is prevent financial fraud, identify money laundering and criminal activities and monitoring large value cash transactions
  7. 7. Salient features of KYC norms• Proper introduction while opening account is necessary• Identity of the account holder is to be established• Photograph of the account holder• Proof of address is necessary• Specimen signature of the account holder is to be obtained• Monitoring and reporting suspicious transaction
  8. 8. Deposit Insurance• In case of bank failure to protect the saving of small depositors either fully or in part• Mostly Govt. established and managed• May or may not be a part of Central Bk.• DICGC in India (Up to Rs.100,000)• Problem of moral hazard
  9. 9. When insured bank fails• Insuring agency may ask some healthy bank to take over failed bank• It can take charge and manage operation of failed bank till suitable buyer is found• It can pay off the deposit up to the maximum amount insured
  10. 10. Non deposit source of funds• Concept of “Funding Gap”• It is the difference between current and projected credit and deposit flows• If projected credit > projected deposit flow, bank need to raise additional funds• If it is reversed, bank needs to find out profitable investment avenues
  11. 11. Various non deposit sources• Borrowing from Central Bank• Certificate of Deposits• Foreign Funds• Commercial Papers• Other Money Market borrowings
  12. 12. Selection of non deposit source• Factors to be considered while selecting non deposit source – Cost – Risk – Period for which the funds required – Prevailing regulations for each of these sources