2. Banking History
Bank of Hindustan was set up in 1870; it was the earliest
Indian Bank.
Later, three presidency banks under Presidency Bank's act 1876
i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras
were set up, which laid foundation for modern banking in
India.
In 1921, all presidency banks were amalgamated to form the
Imperial Bank of India. Imperial bank carried out limited
number of central banking functions prior to establishment of
RBI. It engaged in all types of commercial banking business
except dealing in foreign exchange.
3. Reserve Bank of India Act was passed in 1934 & Reserve
Bank of India (RBI) was constituted as an apex body
without major government ownership. Banking
Regulations Act was passed in 1949.
This regulation brought RBI under government control.
Under the act, RBI got wide ranging powers for
supervision & control of banks.
The Act also vested licensing powers & the authority to
conduct inspections by RBI.
4. In 1955, RBI acquired control of the Imperial Bank of India,
which was renamed as State Bank of India. In 1959, SBI took
over control of eight private banks floated in the erstwhile
princely states, making them as its 100% subsidiaries. It was
1960, when RBI was empowered to force compulsory merger
of weak banks with the strong ones.
It significantly reduced the total number of banks from 566 in
1951 to 85 in 1969.
In July 1969, Government nationalised 14 banks having
deposits of Rs. 50 crores & above.
In 1980, Government acquired 6 more banks with deposits of
more than Rs.200 crores.
5. Banking Regulation ACT 1949
The Reserve Bank of India was nationalized on January 1,
1949 under the terms of the Reserve Bank of India
(Transfer to Public Ownership) Act, 1948. In 1949, the
Banking Regulation Act was enacted which empowered
the Reserve Bank of India (RBI) "to regulate, control, and
inspect the banks in India." The Banking Regulation Act
also provided that no new bank or branch of an existing
bank could be opened without a license from the RBI, and
no two banks could have common directors.
7. PSBS
SBI
ASSOCIATE BANKS 5 SBH, SBM,SBT,SB OF Bikaner
and Jeypore, SB of Patiala (SB of SAURASHTRA and
SB OF Indore merged with SBI)
Nationalised Banks 19
TOTAL 25
8. Aggregate Business of
scheduled Banks in India as on
June 2012(237 banks)
AGGREGATE DEPOSITS AS ON JUNE 2012
Rs 64,02,080 crores
Aggregate credit 49,06,840 cr
Investments 19,17520 cr
Cash Reserve Ratio 5.9%
Investment Deposit ratio 30%
Credit Deposit ratio 76.6%
9. Monetary Policy of RBI
CRR 4.75%
SLR 23% reduced from 24%
Bank Rate 9%
Repo Rate 8%
Reverse Repo Rate 7%
10. CRR: Cash Reserve Ratio
CD Ratio: Credit Deposit Ratio
SLR: Statutory Liquidity Ratio
REPO: Repurchase option rate
BANK RATE: It is a reference rate
11. Functions of Central Bank
Monopoly of Note Issue
Monetary Management of country
Control and supervision of Financial system including Banks, NBFCs etc.,
Monetary and credit policy will be dictated by RBI
Regulation of Forex markets and Custody Of FOREX RESERVES and Exchange control
regulation
Giving policy prescriptions of Reserve requirements like CRR and SLR
Credit monitoring and regulation
Open Market Operations
Selective credit control and credit rationing
Acting as Bankers’ Bank and Govt.’s Bank as lender of last resort like Allowing
OVERDRAFTS and LAF
Branch licensing
Bank rate policy
Refinancing and Developmental role
As Central Bank of Clearance
Custodian of Nation’s Reserves
12. Instruments of Monetary Policy
Bank Rate policy
Open Market Operations
Variable Reserve System
Selective Credit Controls
Credit Rationing
Moral Suasion
Direct Action
13. Banking Regulation Act 1949
Section 6 lays down the forms of business in which banking companies
may engage. This section prohibits banking companies from taking part in
speculative trade
Section 7 prohibits the use of any of the words “bank”, “banking” or
Banking company other than a banking company
This act lay down the minimum capital norms
This act requires banking co to transfer 20 percent of its profits to reserves
It prohibits loans and advances on the security of its shares
It confers powers to RBI to determine the policies of lending to be followed
by banks
It requires every banking co to obtain license from RBI to carry business
It confers powers to RBI to inspect any banking co at any time
It requires the Banks to obtain permission from RBI to Amalgamation of
banks
14. Role of Commercial Banks
Mobilisation of deposits and lending
Agency services like collection of instruments, bills etc.,
Forex transactions
Services like issuance of BGs and LCs
Investment advisory services
Portfolio management services
Third party services like Insurance and Mutual Funds
Safe custody services
Investment portfolio
Credit cards, travellers cheques, gift cheques etc.,
15. NABARD
National Bank for Agriculture and Rural development
Set up in 1982 and the paid up capital is Rs 1000 cr
Credit functions: it provides through the banking systems all
kinds of productive and investment credit to agriculture and
allied activities
It provides different types of refinance to Coop banks,
Commercial banks, RRBs etc.,
It coordinates the operations of Rural Credit agencies and
develops expertise to deal with agrl and rural problems, assists
Govts,
It undertakes inspections of RRBs, Cooperative banks
16. EXPORT IMPORT BANK(EXIM
BANK)
SET UP IN 1982 AND PAID UP CAPITAL IS 500 CR
Main functions of EXIM Bank
1.Financing of exports from and imports not only to India but also
third countries
Financing joint ventures in foreign countries
Financing of export and imports of machinery and equipment on
lease basis
It also undertakes limited merchant banking activities such as
underwriting of shares, bonds, debentures etc.,
It also takes up rediscounting and guarentees
It also provides loans to Foreign Govts, relending to banks overseas,
refinance to banks of export finance
It also undertakes developmental role for the Govt , EXPORTERS,
in developing export trade
17. ECGC
It is established by GOVT OF INDIA which plays an important
role in the field of Export promotion and trade
It offers protection to the exporters and banks from risks
inherent in selling goods and extending credit to foreign buyers
Standard policies issued by ECGC are going to cover the risks
in an export trade
Commercial risks including Insolvency of the importer, default,
failure to accept the goods
Political risks include restriction placed on transfer of
payments
It pays the exporter a specified percentage of loss
18. SIDBI (Small Industries
Development Bank of India)
Set up in 1990 as wholly owned subsidiary of IDBI with share
capital of 450 cr
Major activities are
Refinancing of term loans granted by banks
Direct discounting as well as rediscounting of bills arising of
sale of machinery and capital equipment by SSI units on
deferred basis
Provides seed capital assistance to entrepreneurs
Rediscounting of short term trade bills
Resource support to NBFCs, SEB, Factoring companies and
other institutions concerned to Small scale industries
19. Foreign Banks
These are the branches in India incorporated abroad
These banks have the option of converting their branches
in India as wholly owned subsidiaries or to continue as
branches from 2005 to 2009
New banks entering India can be permitted to operate as
branches or wholly owned subsidiaries
Foreign banks are permitted to do all normal banking
business in India
20. RRBs
These are added to the Indian Banking scene from 1975
These banks are established as per the provisions of RRBs ACT 197
It is felt by the Govt that the existing credit agencies like coop banks
and commercial banks are not able to cater to the needs of rural
areas fully
Share capital of RRBs is 5 cr 50% will be by the Central Govt, 15%
by the State Govt concerned and 35% by the commercial banks
which sponsors RRBs
Main functions of RRBs to grant loans and advances to Small and
marginal farmers, artisan, small entrepreneurs
RRBs avail refinance facility from NABARD
RRBs as on 31.3.2009 are 86 after amalgamations permitted by
Govt
21. LOCAL AREA BANKS
in 1996, GOVT OF INDIA decided to allow Local area
banks with the twin objective of
1.providing an institutional mechanism for promoting
rural and semi urban savings
2. for providing credit to viable economic activities
Minimum paid up capital will be 5 cr
Its operations are restricted to 3 districts
22. INVESTMENT INSTITUTIONS
Insurance companies : LIC was the monopoly before
2000. MALHOTRA committee was appointed for
Suggesting reforms in Insurance sector
IRDA was set up in 1999 with the IRDA act 1999
There was entry of private players in Life and General
insurance as Govt allowed private participation with
allowing foreign players to have joint ventures with local
players
MUTUAL FUNDS: Mutual funds have been established
as Trusts under the Indian Trusts act and function. These
are regulated by SEBI
23. SEBI and SEBI ACT 1992
SEBI : established in 1998 SEBI act was passed in 1992 with the reforms announced by Govt of India taking capital market
reforms into consideration
1. REGULATORY FUNCTION
a). Registration of brokers and sub-brokers and other players in the market
b). Registration of collective investments schemes and Mutual Funds
c). Regulation of stock exchanges and other self-regulatory organisations (SRO) merchant banks etc
d) Prohibition of all fraudulent and unfair trade practices
e) Controlling Insider Trading and take over bids and imposing penalties for such practices
2. DEVELOPMENT FUNCTIONS
a) Investor education
b) Training of intermediaries.
c) Promotion of fair practices and Code of conduct for all S.R.O.s
d). Conducting Research and Publishing information useful to all market participants
24. SEBI AND CAPITAL MARKETS
SEBI works like a watch Dog. It tries to regulate the
capital market both primary market and secondary market
It protects investor by adopting stringent measures in
controlling and monitoring the capital market in India
Disclosure norms have become mandatory and every
corporate before going for any public issue have to be
transparent and disclose the information as directed by
SEBI so that investor gets to know sufficiently about the
company before making investment decision
SEBI is following strict norms in controlling price rigging
and regulating merchant bankers
25. Types of Liabilities in a Bank
Net worth : Capital and Reserves
Demand Deposits like SB, CD
Term Deposits
Short term Borrowings
Other concepts pertaining to Liabilities
NDTL : Net Demand and Time Liabilities
Capital Adequacy Ratio
Asset Liability Management
Contra items
Profit
26. Bank Balance Sheet-Assets
Cash
Bank Balances
Investments
Loans(short term and long term)
Over drafts and Cash Credits
Bills purchased and Bills discounted
Fixed assets
Sundry Debtors
Loss
Contra items
27. Employment of Bank Funds
Cash in Hand
Money at Call and Short notice
Bills Discounted
Loans and advances
Investment
Fixed Assets
28. Branch Banking vs Unit Banking
Unit banking is localised and they transact with others with
correspondent system
Branch banking is bank having a head quarters operate through
various branches of the banks and operations will take place
intra branch.
Universal banking : it refers to a Bank which offers a wide
variety of financial services beyond the strict boundaries of a
commercial bank. It is a combination of commercial banking,
investment banking and various other activities including
insurance. An universal bank offers this entire range of
financial services with in the bank or through subsidiaries
29. Virtual Banking
Customers are increasingly moving away from the
traditional banking services. Broadly speaking Virtual
banking denotes the provision of banking and related
services through extensive use of information technology
with out direct recourse to the bank by the customer.
Order of the day today is ATMs, Shared ATM network,
Smart cards, Internet banking, Phone Banking etc.,The
relative advantages are 1. lesser operational costs, 2.
Speed of service 3. convenience and comfort
30. Investment Banking and
Universal Banking
Investment Bankers :These organizations will not be like
Banks and they concentrate on working as intermediaries
for fund mobilisation and their investments and they will
not undertake normal operations of a bank like lending
and other services. They act like underwriters, merchant
bankers etc.,
Universal Banking: these organizations undertake wide
range of financial services and thus they are beyond
traditional commercials banks. They will be like Financial
services super market
32. Lead Bank Scheme 1969
After introduction of Social control in 1969, 14 Banks were
nationalised in 1969 and the Act was passed in parliament in
1970
Lead Bank Scheme was introduced in 1969 as per the
recommendations of National Credit Council under the
chairmanship of DR Gadgil and also Committee of Bankers
under the chairmanship of Nariman
Banks are allotted certain districts to take the lead in surveying
the potential of banking development in extending branch
banking and expanding credit facilities
All the districts in the country are allotted to SBI group,
nationalised banks and few private sector banks
33. Lead Bank scheme contd
Main role of banks in this scheme is
. to survey the resources and potential for banking development
.to survey the no of industrial and commercial units which do
not have banking accounts
To examine the facilities of marketing for agrl produce
To survey the facilities for stocking fertilisers
To assist other primary lending agencies
To maintain contact and liaison with Govt departments
To prepare bankable schemes
Forming SLBC, District level and Mandal level
Service area approach is introduced and preparing service area
plans in 88-89
34. Bank Nationalisation in 1969
14 Banks were Nationalised in 1969 with an ordinance
and an ACT was passed in Parliament in 1970 which is a
land mark in the history of Banks in India. Later six more
banks were nationalised in 1980
The objectives of Nationalisation
Broad aims of nationalisation of banks as stated in the
Preamble to the Banking companies(Acquistion and
Transfer of Undertakings) Act 1970 “ are to control the
heights of the economy and to meet progressively and
serve better the needs of development of the economy in
conformity with national policy and objectives”
35. Objectives of Nationalisation
The removal of control by a few
Provision of adequate credit for agriculture and small
industry and exports
The giving of a professional bent to bank management
The encouragement of new classes of entrepreneurs
The provision of adequate training as well as reasonable
terms of service for bank staff
36. Criticism of Banks’
nationalisation
The scheme of social control over banks has not been
given a fair trial
Foreign banks and the smaller banks are left out of the
purview of nationalisation
Public ownership w2ill lead to inefficiency in the
working of banks
Public ownership will mean elimination of healthy
competition and initiative
37. Retail banking and whole sale
banking
RETAIL BANKING AND WHOLESALEBANKING
The concept of retail banking
The retail banking means products and services offered to individuals and
households sector for personal use and consumption like loans for housing,
vehicle, for consumer durable, loans for enjoying vacations etc.It not only
means lending but also involves whole of the banking services provided to
individuals and house hold sector.
The products to tap their savings and other services are included in retail
banking.The retail banking concept has been expanded to include services
provided to small and medium sized business and also high net worth
individuals .
The concept of wholesale banking
In the whole sale banking the focus is on corporate, i.e. companies, firms,
proprietorship concerns, Public Sector, Institutions, societies, Trusts, clubs
etc
38. Types of deposits
Current deposits
SB
RD
FIXED DEPOSITS
REINVESTMENT DEPOSITS
SPECIAL DEPOSIT SCHEMES
NR DEPOSITS
39. CURRENT DEPOSITS
CURRENT ACCOUNT is a running account which can be
operated any number of times .They are called demand
deposits
No interest is payable on current accounts. How ever if the
account holder is deceased, then interest will be paid to the
legal heirs as per SB interest rates
Third party cheques can be deposited in current accounts
Over draft facility is available
Loans and advances granted for business activities will be
routed through current accounts
It is suitable for all types of customers
40. SAVING BANK DEPOSITS
This is meant for normal customers whose savings can be
routed through these SB accounts
Restrictions will be there on no of transactions
Interest will be paid taking into account daily balances in
the accounts
Recently RBI has advised the banks to start NO FRILLs
Accounts with zero balance or minimum balances
Restrictions are there to open SB accounts for business
people, trading organisations, companies etc.,
41. RECURRING DEPOSITS
These are mainly aimed for regular savings on regular basis.
Every month there will be fixed amounts deposited in the
accounts for a specified period of time. Interest will be
calculated on cumulative balances in the account. It is like a
term deposit and it is payable on maturity date
It is highly useful for salaries class and fixed income groups so
that they can save for a period of time like 12 months, 24
months, 36 month etc., for a maximum period of 10years as
generally term deposits are required for a period for 10 years
only excepting in special circumstances like court orders etc.
These deposits can be cancelled any time during the tenure
with the discretion of the Bank by applying rate of interest
applicable for that period of existence
42. FIXED DEPOSITS and
Reinvestment deposits
Fixed deposits are accepted by banks for a fixed term with applicable
rate of interest for different period of time declared by the banks
from time to time. Maximum period is 10 years. It is term deposit .
Interest is usually paid quarterly, half yearly or yearly . But monthly
interest can be paid at a discounted price as interest is calculated
quarterly
It can be cancelled in between at the discretion of banks
Loans can be allowed during the pendency of the term by charging 1
percent extra rate
Nomination facility is available. Joint accounts can be allowed with
payable jointly or either or survivor or former or survivor basis
In the case of death amount will be paid to the nominee of the
account holder
43. Fixed deposits contd
For senor citizens there will be higher rate of interest
compared to general depositors and higher rate of interest can
be allowed by banks for a deposit of 15 lakh and above
REINVESTMENT DEPOSITS : In this case, interest will be
added to the principal every quarter and thus maturity will be
calculated and will be paid on the due date. There will not be
any interest payment in between
TDS: Tax deduction at Source will be deducted on interest
payable by the banks as per IT rules from time to time
If TDS deduction has to be avoided, depositor can give a
declaration under 15H declaring that there is no taxable income
for him
44. Special deposit schemes
Daily deposit schemes
Capital gains deposit schemes : These accounts are opened
in designated Banks . These are specialised deposit
schemes where in Sale proceeds of housing property can
be deposited which are tax free
PPF These accounts are maintained by SBI to attract
savings from public which are tax free under IT act up to
ceilings stipulated from time to time by Govt of India like
80C BENEFIT
45. NR DEPOSITS
NRI: Indian citizen who stays abroad for employment or
for carrying business indicating an indefinite period of
stay or indian citizen working abroad with international
organisations like UNO or an official of Govt who is on
deputation abroad for temp assignments
FCNR(B)
NRE
NRO
RFC
EEFC
46. TYPES OF ACCOUNT
HOLDERS
INDIVIDUALS
JOINT ACCOUNTS
Pardanashin woman
ILLITERATE PERSONS
HUFs
MINOR ACCOUNTS
SOLE PROPRIETORY ACCOUNTS
PARTNERSHIP ACCOUNTS
TRUSTS/ASSOCIATIONS
COMPANY ACCOUNTS
SOCIETIES
GOVT BODIES
EXECUTORS AND ADMINISTRATORS
NOMINATION FACILITY
CLAIMS
47. Company accounts
Certification of incorporation and certificate of commencement
of business ; issued by the Registrar of companies
Memorandum of association : it is the main document which
embodies its constitution and is called the charter of the
company: its authorised capital, registered office details, the
objects of the company ,liability of its members, etc.,
Articles of Association: Rules and regulations of the company,
internal management, powers of directors, borrowing clause,
etc.,
Copy of Board resolution to open the account, borrowal clause
etc.,
48. Clubs, societies and charitable
institutions
Society must be incorporated under Societies Registration
act 1860
Rules and by laws of the society
A registered society is governed by the provisions of the
act and copy of the by laws of the society should be
submitted to the bank
Resolution of the Managing committee indicating the
Bank name and branch to open the account
In case of borrowings, bank should ascertain the
borrowing power from its charter of memorandum
49. KYC( KNOW YOUR
CUSTOMER)
RBI has the bankers to exercise due diligence in understanding
the customer
RBI has issued detailed guidelines under KYC
KYC Policies
Customer acceptance policy
Customer Identification procedure through proper documents
Monitoring transactions closely
Risk Management
If the banks comply with KYC guidelines it will facilitate
Identification of depositors, control of financial frauds,
identification of money laundering and monitoring of large value
cash transactions
50. BANKER AND CUSTOMER
Definition of a customer: broadly speaking a customer is a
person who has the habit of resorting to the same place to do
business. So far as banking business is concerned he is a person
whose money has been accepted on the footing that the banker
will honour up to the amount standing to his credit
irrespective of being of short or long standing A person who
does not deal with the banker in regard to the essential
functions of banking but avails other services rendered by the
bank is not called a customer Thus to constitute a customer the
following essential requisites must be fulfilled
1. a Bank account: SB, CD, FIXED
2. dealing between the banker and the customer must be the
nature of banking business
51. General relationship between
banker and customer
1.Debtor and creditor : The moment customer opens an account
and deposits, banker becomes debtor and customer becomes a
creditor The relationship is reversed if the balance in the
become debit balance and money due from the customer
Basic duties for this relationship
1. creditor must demand payment
Proper place and time of demand
Demand must be made in a proper manner
2. Banker as Trustee: Banker acts as a trustee also in some
cases. Suppose customer asks the bank to purchase some
securities from his balances in the account, he acts as a trustee
for the securities
52. BANKER-CUSTOMER contd
BANK AS AGENT:
Bank Collects cheques, Bills etc., for his customer, the
relationship becomes as AGENT
Lessor and Lessee:
In the case of Safe deposit lockers, bank gives its locker
for lease for the customer and in that case it becomes
Lessor and customer becomes lessee
Pledgor and pledgee : Bank finances the customer as
borrower against pledge of goods like Gold loans, in that
case Banker becomes pledgee and Customer becomes
Pledgor
53. NI ACT1881
Negotiable instrument means a promissory note, bill of exchange or
cheque payable either to order to bearer (section 13). This does not
indicate the characteristics of a negotiable instrument but only states
that three instruments are negotiable instruments
A negotiable instrument is a transferable document either by the
application of law or by customs of trade
The special feature of this instrument is the privilege it confers on
the person who receives it bonafide and for value and to possess
good title there on even if the transferor had not title or defect title
These instruments are transferable from person to person and
ownership is passed on mere delivery in case of bearer instrument or
by endorsement in the case of order instrument
54. Types of negotiable instruments
By statute : cheque, bill of exchange, promissory note
By custom or usage like Delivery orders, Railway receipts etc.,
Promissory note : is an instrument in writing containing an
unconditional undertaking signed by the maker to pay a certain sum
of money only to or to the order of certain person or to the bearer of
the instrument (section 4)
Bill of exchange: a bill of exchange is an n instrument in writing
containing an un conditional order signed by the maker directing
certain person to pay a certain sum of money only
To the order of a certain person or to the bearer of the instrument
(Secion 5)
Cheque: a cheque is a bill of exchange drawn on a specified banker
and not expressed to be payable otherwise than on demand
55. Payment in due course
Section 10 states payment in due course means payment in
accordance with the apparent tenor of the instrument in good
faith and with out negligence to any person in possession there
of under circumstances which do not afford a reasonable
ground for believing that he is not entitled to receive payment
of the amount there in mentioned
Payment should be made in accordance with the apparent tenor
of the instrument
Payment should be made in good faith and with out negligence
Payment must be made to the person in possession of the
instrument
56. Endorsements
By delivery
By endorsement and delivery
Endorsement in Blank
Endorsement in full
Conditional endorsement
Restrictive endorsement
Endorsement Sans recourse
57. Crossing of cheques
General crossing
Special crossing
Account payee crossing
Holder of a cheque can cross
Banker to whom the cheque is crossed may again cross it to another
bank, his agent for collection
Liability of the paying banker on crossed cheques
Where a cheque is crossed generally the banker on whom it is drawn
shall not pay it otherwise to a banker and where a cheque is crossed
specially the banker on whom it is drawn shall not pay it otherwise
than to the banker to whom it is crossed or his agent
58. Obligations of Banker to the
customer
Obligation to honor the cheques provided the cheque is in due course in all
aspects and subject to sufficient funds, funds must be properly applicable to
the payment of the cheque and it is duly to be presented to the banker with
in the stipulated period, properly dates, with out any alterations, duly signed
etc.,
Banker is liable to compensate the drawer for any loss or damage caused by
default on his part for dishonouring the cheques with out sufficient reason
Garnishee order : the obligation of a banker to honour his customer’s
cheques is extinguished on receipt of court order which is known as
garnishee order If a debtor fails to pay the debt owed by him to his creditor,
the latter may apply to the court for the issue of a Garnishee order on the
banker of his debtor.. This order given by the court is known as Garnishee
Order. Account becomes suspended
Garnish order may attach either the entire amount or a specified amount
which is sufficient to meet the creditor’s claim
Garnishee order attaches the amount outstanding in the account at that time
It is not applicable for the amounts of cheques sent for collection and
clearance amounts deposited after receipt of the order can not be attached
59. Obligations of banker contd
Obligation to maintain secrecy of account
Exceptions:
When the law requires such disclosure like IT DEPT,
order of the court, RBI ACT, under FEMA rules, under the
credit information act, Public authority as per RTI act
When the practices and usages amongst the bankers
permit such disclosure
60. Bank’s rights
1.Right of General Lien
It confers upon the creditor the right to retain the security but not the right to
sell the securities as per the contract ACT. But the Banker’s lien is
tantamount to an implied pledge .It confers him the power to sell the goods
and securities in case of default
Exceptions
Safe custody deposits
Documents deposited for special purpose
Securities left with the banker negligently
Securities held in trust
2. Right of set off
3.. Banker’s right of appropriation
4..Right to charge interest, incidental charges
5.period of limitation
61. Collection of cheques
While collecting his customer’s cheques a banker acts
either as a holder for value or as an agent of the customer
If the collecting banker pays the amount of the cheque or
credits the account before sending for realisation, the
banker holds the cheque for value
If he merely sends the cheque for collection, he acts as an
agent
If bank collects the cheque not to the true owner banker is
charged with a charge of CONVERSION
Statutory protection is available for the banker as a
collecting banker subject to fulfilling certain conditions
62. Collecting banker contd
1.Cheque must be a crossed cheque
2.Payment must be received for the customer
3 P ayment must be received in good faith and with out
negligence
63. ALM-Asset Liability
Management
ALM is very important for Banks Every Bank is supposed
to have ALM committee to monitor this and fix interest
rates from time to time
ALM will over see to see Asset liability mismatch will not
happen to avoid Liquidity crisis
All the Liabilities and assets are segregated into different
time buckets
64. Principles of lending
Safety
Liquidity
profitability
Security
Character
Risk diversification
Capacity
Capital
65. Bank Loan Policy
Bank will declare Bank loan policy with the approval of
their Boards
As per the policy lending will be administered
Bank loan policy will be taking into consideration RBI
norms related Exposure Norms, Priority sector guidelines ,
Past performance in various sectors, lending norms,
security norms, Exposure to Non funded limits etc.,
Exposure norms to unsecured advances, Consortium
advances
Monitoring of advances, Recovery Management etc.,
67. Types of credit
Cash Credit
Over drafts
Loans
Purchase and discounting of bills
Non Funded limits
68. Cash credits
Cash credits are sanctioned by the Banks seeing the need
of the borrower for working capital purposed
These are considered demand loans
Though borrower will be charged interest on the actual
drawings though bank is supposed to keep adequate
balances to meet the requirement
Banks will charges commitment charges for undrawn
limits
1% will be charged on the unutilised portion of working
capital sanctioned keeping 15% tolerance limit
69. CASH CREDITS contd.,
Advantages to the borrower: borrower has flexibility to
draw actual requirements and interest can be minimised by
efficiently handling the operations
Operative convenience compared to loans as it is a single
account for all operations
Weaknesses: limits are fixed yearly once
Banks will not able to ensure end use especially in open
cash credits
Lack of proper management of funds as they are dictated
by the borrowers’ drawings
70. CASH CREDITS CONTD.
Types of Cash credits
Open Cash credits: it is based on hypothecation of goods and the custody of goods
will be with the borrower where security will be changing always either place or
same goods will move
Ex Cotton mills, Rice mills etc.,
If necessary hypothecated goods can be taken control of goods by the bank by
giving a reasonable notice
Charge created is known as HYPOTHECATION It is not in statutory acts but it
has become a charge by practice
Key Cash Credits:
Goods will be kept under locker and it will be with the custody of the Bank
Ex :Key loans or loans against warehouse receipts
The relations between Banker and Borrower is that of Pledge and Pledgor and the
charge is Known as PLEDGE It is based on Indian Contacts Act
O
71. Term Loans
Term loans are given by banks for Investment credit . They are given
with different time durations like 36 months, 48 months, 60 months
etc., Excepting housing loans and Infrastructure loans, normally term
loans are given for a maximum period of 8 to 9 years with some
gestation period for fixing the repayment schedule
Term loan can be given for acquiring machinery, equipment,
furniture, vehicles, Land and buildings purposes
Viability study will be made by taking into consideration surplus
income generated from the unit under consideration so that the
entire loan can be repaid in 7 to 8 years.
For housing loans, infrastructure loans longer repayment schedule
considering their surpluses generated and longevity of the assets for
which loans are given
72. Assessment of Term loan –an
example
Type of asset cost Margin Bank loan ( in lakhs)
Land 50 40% 20 30
Building 50 40% 20 30
Machinery 100 25% 25 75
Electrical and
Other fittings 20 25% 5 15
Vehicles 20 25% 5 15
WC margin 10 100% 10 --
Total project cost 250 85 165 lakhs
Repayment schedule will be fixed by taking into consideration
of DSCR (Debt service coverage ratio)
73. DSCR
DSCR= Net profit after tax and dep+ depreciation+ interest on
term loan
___________________________________
Interest on TL and TL Installment
Normally accepted DSCR is minimum 1.5: 1 Higher is
acceptable but not lower. In case of lower DSCR repayment
period can be increased if feasible
Ex : Net Profit : 30 lakhs Dep : 30 lakhs Interest @14%
20 lakhs repayment 4 years
DSCR= 30+30+ 41 / 20+41 = 101/61=1.6:1
It is acceptable
74. Break even point
Break even point is a point where it is no profit and no loss stage at
that point of production. Once it crosses the production of BEP,
Profits will result and before this point losses will occur. When we
are appraising a proposal for term loan we should know at which
percentage of production , break even point occurs, Earlier that
chances are good for that proposal to be considered. Normally we
expect that the unit should break even in the first year itself and
second year onwards it should get into profits
Fixed costs = 5 lakhs Selling price is 50 Rs per unit and Variable
cost is 30 Rs
BEP= Fixed costs/ selling price-variable cost
= 5,00,000/ 50-30 = 5,00,000/20= 25000 units
For example capacity for the unit is 100000 units and if 25%
production is reached, it results in BEP AND from this point it goes
into profits
76. Inventory method/ RBI method
Operating cycle or working capital cycle
Each and every stage of the working capital cycle, funds
are blocked, In this method actual requirement will be
calculated for each and every stage and the total
requirement is calculated. That is why it is named as
Scientific method based on inventory system taking into
consideration of working capital cycle
77. Nayak committee turn over
method
Turn over method based on Nayak committee
recommendations
78. Analysis of Financial statements
Net worth :
Capital
Reserves
Tangible net worth: Net worth- Intangible Assets
Intangible Assets: Good will, Patents, Trade Marks etc.,
79. Ratio Analysis
Liquidity Ratios:
Current Ratio
Current Assets/ Current Liabilities
Quick Ratio/ Acid Test Ratio:
Quick Assets/ Quick Liabilities
Operating Ratios
Debtors turn over ratio
Creditors turn over ratio
80. Analysis of Financial statement
contd.,
Profitability Ratios:
Gross profit Ratio: Gross profit / Net Sales
Net profit Ratio : Net profit/ net sales
Operating Ratios:
Inventory turn over ratio:
Sales/ average inventory
Fixed assets turn over ratio: Sales/ Fixed Assets
81. Leverage Ratios
Debt : Equity ratio
Long term Debt/ Net worth
Tangible net worth plus term liabilities /
Net Fixed assets Ratio
Total outside liabilities/ Tangible Net
worth
82. Funds flow statement
Statement of Sources and Uses
Sources:
Increase in liabilities
Decrease in Assets
Profit from operations
Uses/ applications:
Increase in Assets
Decrease in Liabilities
83. Types of Securities
`Advances against goods: Industrial Raw material,
Products, agrl. Produce, food articles etc.,
Advances against Documents of Title to goods
Bill of lading
Ware house receipts
Railway receipt
Trust Receipt
Advances against STOCK EXCHANGE
SECURITIES
84. CREATION OF CHARGE
Lien: section 171 of Indian Contracts Act confers the general
lien on the banker
Negative lien: banker will not have any right to retain the assets
Pledge: Section 172 of Indian Contracts act
defines pledge as bailment of goods as security for
payment of a debt or performance of a promise
Essentials in pledge: 1.Delivery of goods2.
Bailment of goods with the object of securing the
payment of a debt or the performance of promise
Goods can be pledged by the owner of the goods
85. Duties of Pledgee
Pledgee is bound to return the goods upon receipt of payment
Pledgee is responsible for any loss, destruction of goods
Pledgee is bound to take all the precautions and care during the time of
pledgement of goods
Hypothecation
It is the charge created in case of movable goods. Neither the
ownership nor possession of goods is transferred to the
creditor but an equitable charge is created in favour of the
latter. Hypothecation is a convenient device to create a
charge over the movable assets where transfer is
inconvenient
RBI has issued guidelines to Banks to be cautious for
hypothecation as there is a chance of double finance
86. Mortgage
As per Section 58 of the Transfer of property Act 1882
Mortgage is created on immovable property to secure
loan
Section 58 defines mortgage as “the transfer of an interest
in specific immovable property for the purpose of securing
the payment of money, advanced or to be advanced by
way of loan, an existing or future debt
The transferor is called Mortgagor , the transferee is
Mortgagee
87. Forms of Mortgages
Simple Mortgage
Mortgage by conditional sale
Usufructuary Mortgage
English Mortgage
Mortgage by Deposit of Title deeds
Anomalous Mortgage
88. ASSIGNMENT
Assignment means transfer of a right, property or a debt
existing or future.
Borrowers generally assign the actionable claims to the
banker. Section 130 of the Transfer of property act 1882
permits such assignment
Ex: BOOK DEBTS, Money due from Govt , LIC policies
etc.,
89. Documentation
Types of documents
Demand promissory note
Letter of continuing Security
Letter of waiver
Agreement of pledge
Agreement of Hypothecation
Letter of lien and set off
Personal guarentee
Term loan agreement
Mortgage deed
Letter of Negative lien
90. Letters of Credit
A Letter of Credit is a letter issued by the banker of the foreign
buyer, at the latter’s request, in favour of the exporter informing him
that the issuing banker undertakes to accept the bills drawn in respect
of exports made to the foreign buyer specified there in.
Parties to the letter of Credit
Importer is called the applicant
Banker who issues letter of credit is opening Bank or Issuing Bank
Exporter is the Beneficiary
Advantages of LC:
Certainity of payment
Security against exchange restrictions
91. Types of LCs
Documentary LC and Clean letter of credit
Fixed credit and Revolving credit
Revocable and Irrevocable letters of credit
Confirmed and unconfirmed letters of credit
With or with out recourse credits
Transferable and Nontransferable letters of credit
Back to Back letters of credit
Red clause letter of credit
92. guarentees
Section 126 defines a contract of guarentee as a contract to
perform the promise or discharge the liability of a third
person in case of his default
93. Documentation contd.,
Blank Transfer deed
Letter of appropriation
Letter of assignment
Letter of undertaking
Loan agreement
Valuation certificate
94. Select Operational Data
Monthly statements to be submitted to the bank by the
industrial borrowers on select operations.
This includes SALES, INVENTORY, ETC.,
QIS : QUARTELY INFORMATION SYSTEM
I AND II will be submitted quarterly indicating projections and
performance of various parameters
III will be submitted half yearly which gives uses and
application of funds
These statements will have to be submitted by the borrowers
whose working capital limits are more than 1 crore
95. Priority sector lending
Agriculture
SSI
Service sector advances like Retail Trade, Professional
and self employed, Business Enterprises, Housing Finance, Education
loans, Consumption loans, Tiny Sector, Small and Road Transport
Operators, Loans to SHGs etc.,
40% of the advances should go to PRIORITY SECTOR and out of this 45%
should go to Agrl Finance and 25% of the priority sector should go to
weaker sections
Indirect finance to agrl finance should not be more than 25% of the total
agrl credit ( i.e. 4.5% of net bank credit)
Targets for Foreign banks operating in India
Priority sector advances : 32% of total advances
Advances to SSI 10%
Export credit 12%
96. Micro, Small and Medium
enterprises
Manufacturing enterprises service Enterprises
Plant and Machinery investment in equip
Micro 25 lakhs 10 lakhs
Small enter 25 to 5 cr above 10 L to 2 cr
Medium Above 5 cr to 10 cr above 2 cr to 5 cr
As per RBI , Banks should give 40% of total advances to SSI to
micro enterprises with investements upto 5 lakhs and 2 lakhs
respectively
20% should go to units with 5to 25 lakhs in micro and 2 to 10 lakhs
in service enterprises
40% will go to other enterprises
CGTMS: CREDIT GUARENTEE FUND TRUST FOR MICRO
AND SMALL ENTERPRISES Upto 100 lakhs limit
97. Agriculture and other priority
sector
Direct finance and Indirect finance
Production loans like crop loans
Development loans for Minor Irrigation,Land improvement
,farm machinery etc.,
Other priority sector:
Small Road and Water transport operators : UPTO 10 vehicles
including the one to be financed now
Retail Trade:loans upto 10 lakhs will be qualified under priority
sector
Small business: Credit limit upto 20 lakhs will be under PS
Professional and self employed :10 lakhs limits and 15 lakhs
for doctors in rural and semi urban areas
98. PS contd.,
Educational loans: 10 lakhs for domestic studies and 20
lakhs for studies abroad
Housing loans : 5 lakhs in rural areas and 20 lakhs in
urban areas
DRI loans: 4% RATE OF INTEREST
1% OF THE ADVANCES should go to DRI
Eligibility : income 18000 in rural area and 24000 in semi
urban and urban areas
Maximum loan is 20000 for housing loan and other loans
it will be 15000
99. Prudential norms
Performing assets
Non performing assets
Non performing assets:
Substandard assets NPA less than one year ie 12 months
Doubtful assets
Loss assets
Provisioning requirements
For Standard assets 0.4% is the requirement and for agrl
advances it is 0.25%
100. Prudential norms contd.,
Substandard assets” 15% of the total outstanding on secured
portion and 25% on unsecured portion
Doubtful assets:
On unsecured portion it is 100% and on secured portion
Up to one year it is 25%
Above one year and up to 3 years 40%
More than 3 years 100%
Loss Asset : 100%
Capital adequacy requirement 9% of risk weighted assets
Tier I capital
Tier II capital
101. Prudential norms contd.,
Advances against Deposits, NSCs, KVPs, IVPs and LIC
policies need not be treated as NPAS.
Interest during the moratorium period has to be recovered
only after that period. Those interests will not be treated
as overdue
In case of agrl advances if the installment and interest is
due for one crop season
Government guarenteed accounts will not be treated as
NPAs unless the guarentee is with drawn
102. BASEL NORMS
Basel is a city in Switzerland. It is the headquarters of Bureau of
International Settlement (BIS), which fosters co-operation among
central banks with a common goal of financial stability and common
standards of banking regulations.. Currently there are 27 member
nations in the committee. Basel guidelines refer to broad supervisory
standards formulated by this group of central banks - called the Basel
Committee on Banking Supervision (BCBS). The set of agreement by
the BCBS, which mainly focuses on risks to banks and the financial
system are called Basel accord. The purpose of the accord is to ensure
that financial institutions have enough capital on account to meet
obligations and absorb unexpected losses. India has accepted Basel
accords for the banking system. In fact, on a few parameters the RBI has
prescribed stringent norms as compared to the norms prescribed by
BCBS.
103. Basel III
It is widely felt that the shortcoming in Basel II norms is what led to
the global financial crisis of 2008. That is because Basel II did not
have any explicit regulation on the debt that banks could take on
their books, and focused more on individual financial institutions,
while ignoring systemic risk. To ensure that banks don’t take on
excessive debt, and that they don’t rely too much on short term
funds, Basel III norms were proposed in 2010.
Basel III establishes tougher capital standards through more
restrictive capital definitions, higher risk-weighted assets (RWA),
additional capital buffers and higher requirements for minimum
capital ratios. It also introduces new strict liquidity requirements.
104. Ancillary services and new
products
Remittances:
Mail transfers, TTs, Bank Drafts, Travellers’ cheques
New methods: Electronic transfers, Real Time Gross
settlement system, internet banking , NEFT
50000 and more amount DDs will be issued not against
cash and only through account transfers
ECS: This facility is meant for companies, Govt
Departments etc., for regular remittances or payments
like Loan installments, or monthly insurance etc., can be
done through ECS
105. contd
IFSC ;Indian Financial system code
Travellers cheques:
Denominations of 50,100, 500 can be issued and they can be
encashed at any branch
Safe Custody of Valuables: Safe deposit vaults
They are of different sizes with different rentals and there will
be agreement between the Bank and the customer
In case of loss of key, it has to be broken open and new key
will be delivered by the supplier and it will be opened in the
presence of the customer and necessary charges will have to be
paid by the customers
106. Credit cards
Credit card is an instrument which provides instantaneous
credit facilities to its holder to avail a variety of goods and
services at the merchant outlets
There will be agreement between Banks and Merchant
establishments
Merchant establishments will pay commission to the banks on
the transactions at the agreed rates
Advantage for the merchant establishments is higher sales due
to accepting credit cards
Debit cards: the main difference between credit card and debit
card is through debit card account is debited and there is no
extension of credit
107. Financial inclusion
USE of Business Facilitators and correspondents
With the objective of ensuring a greater financial inclusion
and increasing outreach of the banking sector, RBI has
decided to enable banks to use the services of
NGOs/SHGs, Micro finance institutions as intermediaries
108. BANKING TECHNOLOGY
Need for Computerisation:
Four major objectives of computerisation to improve
Customer service
House keeping
Decision making
Productivity and profitability
Types of Systems
Stand alone computer system
Multi user systems
Multi User computer Networking
109. Contd.,
Major advantage of installing single user systems are numerous
such as low equipment cost, no complicated soft ware
required, easier to impart training etc.,
Multiuser systems
Several people can work at the same time.
Multi user computer networking
In such a system computers are based on the centralised
processing concept. All the information is kept and processed
at the main central machines and various terminals are attached
to the main computer
Most of the banking systems are developed using the
centralised computing concept
110. Banking technology contd.
Branch level computerisation:, This can be used to provide
better and speedy customer service, to improve the house
keeping , generation of various reports for decision making
etc.,
Total Branch automation
With total branch computerisation all the cusomer and business
transactions are done with the help of computers. This is a real
time on line banking.It is possible to provide single window
transaction concept
EFT transactions can take place and off side ATMs are linked
to the branch system to enable the customer to bank any time
and any where
111. LAN and WAN
LAN: Local area net work
THE computer network that links computers and
peripherals with in a localised area say, with in a building
is known as LAN. Computers and related equipment can
be connected through nodes placed any where in the
network
Advantages of Lan in Banks are
Expensive resources can be shared by several users to
bring down the cost
Information stored in the host computer is available to all
users
112. WAN
WIDE AREA NETWORK
Wide area networks are defined as a large scale computer
network spread over a span of sizeable geographic area
normally utilising the telecommunication network
Computers can be linked by using ordinary telephone
lines which is called dial up network. Connectivity can be
also established by using satellite links
Branch computer can be linked to RO/ZO/HO through
WAN
113. CORE BANKING
Core banking has a centralised branch computerisation model
where the branches are connected to a central host which
incorporates branch automation modules and one line multiple
delivery channels like ATM, Debit card etc.,
Business components
Retail customer modules
Deposits, loans, bills, remittances etc.,
Trade finance, forex modules
Corporate finance
Enhanced MIS modules
Integrating with the existing ATMS etc.,
114. Benefits of core banking
Enables the establishment of a reliable centralised
repository
Facilitates data warehousing and data mining
Enables centralised management information
Facilitates Business process re engineering etc,
Essentials for Core Banking
Creation of Data centre
Disaster recovery site
Business process reengineering
115. Electronic payment systems
ATMs
They are used for performing some of the banking functions like
withdrawals, statement of account, balance enquiry etc.,
Advantages of ATMs
24x7 access
Less time for transaction
Privacy in transactions
Any branch/bank enabled
Lesser cost for setting up ATMs
PIN: Personal identification number this strip is fixed on the back
of the cards once the PIN is entered by the card holder, matches the
the one recorded in the computer, customer will be allowed to have
access with the account
116. Different types of cards
Charge card: Transactions are accumulated over a period
of time, generally a month and the total amount charged
debited to the account
Credit card: Credit card holder has the option to pay or to
pay a minimum amount or paying in installments of
course with service charges
Debit card: It is issued to the account holder and the
amount debited is automatically debited to the account
Smart cards: it looks like a debit card or credit card but an
integrated circuit chip is installed .
117. Corporate banking
Remote banking has become popular with the corporate
customers especially big business and industrial houses are
already automated.More and more banks are providing their
terminals at the office. Through this terminal corporate
customers are able to get their statement of accounts, order
inter and intra bank transfers, international remittances,
opening LCs etc.,
Personal banking: By using tele banking facility customers can
dial up the branch’s designated telephone number which is
connected to the computer and by dialing his identification
number will be able to get connectivity . Customer can have
access to his account through the tele banking
118. Internet banking
With the popularity of PCs and easy access to internet and
world wide web (www), banks use internet as a channel
for receiving instructions and delivering their products
and services to their customers.
The levels of banking services offered by Internet banking
Basic level services
Simple transactional websites
Internet banking services by fully transactional websites
119. Cheque truncation
It is defined by the new section 6(b) of NI Act as a cheque
which is truncated during the course of a clearing cycle either
by a clearing houses or by the bank whether paying or
receiving payment immediately on generation of an electronic
image for transmission, substituting the further physical
movement of the cheque in writing
Advantages:
It truncates the flow of cheque in physical form
Microfiche: Normally banks use catridges for data storage but
their longevity in data recovery over a period is doubtful. For
such ticklish data storages, microfilm or microfiche come in
handy because they can retain voluminous information and the
relative inability to readily ascertain their contents
120. RTGS
RTGS is an electronic payment environment where payment
instructions processed on a continuous or REAL TIME Basis
and settled on a Gross or individual basis with out netting the
debits against credits payments so effected are final and
irrevocable settlement is done
Each bank will have a single gate way interface called
participant interface or PI for the RTGS system
The payment message originates from the participant’s host
system
The message is passed on by the participant and clearing
System interface to inter bank funds transfer processor which
acts as a banker
121. INET
INET was set u by the department of telephones in 1991. it is
a fast, reliable, flexible and quite cost effective data
communication net work
Typical applications of INET
Electronic mail services, information retrieval, corporate
communications, Remote login , Electronic fund transfers,
credit card verification etc.,
INET allows both way connectivity to
Remote Area Business Message Network
High speed VSAT Net work
Gate way packet switching system of VSNL
122. BANKNET
RBI commissioned the BANKNET in 1991. This I a
packet switched X 25 based network with nodes at
Mumbai, Delhi, Chennai and kolkata and a switching
centre at Nagpur. In addition Bangalore and Hyderabad
are connected to Chennai through remote connection.
User banks access BANKNET through leased lines at the
respective local centres with COMET(Computerised
Message Transfer and File Transfer) software.
123. RBI Net
RBI Net, A communication soft ware allows for free
messaging and file transfer on the existing BANKNET
infrastructure with the help of servers installed at four
metros……
RBI net is being by several departments of the bank for
various applications such as Transaction of section 42 of
the RBI act data by commercial banks to regional offices
of department of banking operations
124. Impact of IT on Banks
Technology has helped the Banks to strategically look at
the customer needs to offer newer and more efficient
banking services
Changes in ORGANISATION STRUCTURE and
orientation
Impact on service quality
Impact on Human Resources
Role transition
Training needs
125. Information system Audit
It has gained importance in the context of accelerated pace
of computerisation taking place in banking sector
The audit is carried out through the IT systems with the
aid of Computer Aided Audit Tools and Techniques
CMTT is a readily available user friendly soft ware and
various types are used with relevance to the purpose of IS
audit
Controls to be looked into IS Audit
Control consists of a set of inter related components that
function together to achieve some overall purpose
126. IS Audit contd.,
Controls to be evaluated in IS Audit
Deterred Controls: to deter people internal and external
from doing undesirable activities
Preventive controls: preventive controls prevent the cause
of exposure from occuring or atleast minimise the
probability of unlawful event taking place
Detective controls: when a case of exposure has occurred,
detective controls report its existence in an effort to arrest
the damage further or minimise the extent of damage
Corrective controls: Corrective controls are designed for
recovery from a moss situation
127. Benefits of IS Audit
It would identify the risks of exposure to an existing
computerised environment
It would deter people from indulging in corruption/
manipulation of data, frauds, etc.,
128. Information system security
Need: It is much more complicated with respect to IT security
compared to normal physical security
Information security is something which is best experienced than
explained
Security in payment systems cannot be addressed in isolation and it
requires the integration of work processes, communication linkages
and integrated delivery systems and should focus on stability,
efficiency , and risk control
Objectives: to prevent unauthorised disclosure of information stored
o or processed (confidentiality)
To prevent the accidental or unauthorised deliberate alteration or
delition of information (integrity)
To ensure that information is available to authorised persons when
required (AVAILABILITY)
129. Disaster Recovery
management
Main objective of Disaster recovery management is to safe guard the
information
To maintain business continuity at the optimum level with in shortest
possible time
Any even which results in direct denial or stoppage of essential
business functions for a considerable period of time may be defined
as a disaster
Disaster recovery planning
The following are some of the threats
Natural disasters, such as fire and earth quake(external factors)
Hard ware and soft ware failures
Virus attack
Acts of terrorism
130. Marketing of Bank Services
Definition of Marketing:
Marketing is the business function that identifies the
current unfulfilled needs and wants, defines and measures
Their magnitude,determines which target markets the
organisation can best serve and decides an appropriate
products, services and programmes to serve these
markets,. Thus marketing serves as a link between a
society’s needs and its pattern of industrial response-
Kotler
131. Marketing of services
Marketing Mix for products
Product
PRICE
PLACE
PROMOTION
Marketing mix for services
In addition to the above for services we have
Process
People
Physical evidence
132. PRODUCT Customer needs and wants
PRICE cost
PLACE Convenience
PROMOTION Communication
PROMOTION MIX
Advertising
Sales promotion
Distribution channels
Tele marketing
136. Marketing of Banking services
Bank Marketing is the aggregate of functions, directed at
providing services to satisfy customers’ financial needs and
wants, more effectively and efficiently than the competitors
keeping in view the organisational objectives of the bank
Commercial objectives: to make profits
Social objective: developmental role to serve the rural areas
Bank cannot exist with out customers
Purpose of the bank is to create, win and keep a customer or
retain the customer
Ultimate aim of the bank should be to satisfy the customer
totally
138. Family life cycle concept
Bachelor stage ; few financial burdens
Newly Married : Better off financially
Full Nest I : Child under six : concerned with savings
Full Nest II : Two children :Better financial position
Full Nest III: Older couples: Purchase durables
Empty Nest I ; Head working : High Level of savings
Empty Nest II: Head Retired : Possible cut in income
Interested in travel and leisure
139. CRM
Activities under CRM
Establish and maintain customer information database
Planning customer contact points
Analysing customer feed back
Conducting customer satisfaction survey
Managing communication programmes
Hosting special events
140. Product development
Typically banking products combine product with service
for ex SB, Vehicle loan etc.,
Product planning comprises the process of developing and
maintaining a portfolio of products, which satisfy the
needs and wants of customers from different segments
Such product planning has to ensure optimum utilisation
of skills and resources of an organsiation
Product mix consists of Product differentiation,
Packaging, Managing brands and developing brand equity,
New product development , Managing product life cycle
of products/ brands
141. Product Life cycle
Products have a limited life span
Sales of a product passes through distinct stages
Each of stage will have different challenges
Profits rise or fall at different stages
Different marketing strategies are required for different
stages
Introduction
Growth
Maturity
Decline
142. Product development
Process of product development comprises of five main
stages
Idea screening
Concept testing
Product development
Test marketing
Commercial launch
143. Product strategies
Strategies based on Product Mix
Strategies based on product life cycle
Product mix is range of products or PRODUCT LINE
Product Modification:
Quality improvement
Feature improvement
Style improvement
PRODUCT ELIMINATION
In the decline stage drop a weak product
144. Product diversification
Concentric diversification: technological synergy with
existing product lines
Horizontal diversification: for the existing customers, new
products are developed with no relation with the existing
products
Conglomerate diversification:
Totally no relationship with the existing product, market,
business
145. Packaging and branding of
banking products
A brand is a name, term, sign, symbol or design or combination
of these. Branding has become very important for a product for
both sellers and buyers
Brands represent consumers’ perception and feelings about a
product and its performance and the value of a brand is the
power to capture customer preference and loyalty
Building a brand involves brand positioning, brand name
selection and brand development
Options for brand development are 1. Line extension 2. brand
extension 3. multi brands 4 new brands 5 cobranding
146. packaging
Products need to reach the consumer in a convenient
manner and for this purpose they need to be packaged
Primary package : ex shampoo bottle
Secondary package: Tooth paste
Shipping package
Labelling: label is an integrated part of packaging and it is
of vital importance
147. Pricing of Bank products and
services
Objectives of pricing
Profit
Survival
Market share
Cash flow
Status quo
Product quality
Communication image
148. Pricing methods
Low prices
Floor pricing
Orienting point competitors’s prices
Ceiling price
High price
Consideration for selling prices
Cost based pricing
Value based pricing
Competition based pricing
150. Distribution channels
The goods reach from the producers through a chain of entities
Functions of distribution channels
Market information
Promotion
Contact
Matching
Negotiation
Product information
Physical distribution
Financing
152. Promotion mix and role of
promotion
Promotion mix
Advertising
Personal selling
Sales promotion
Public relations
Direct marketing
153. Tele marketing and mobile
phone banking
Tele calling a prospect
Leaving message and contacting the person other than the
prospect
No misleading statement or misrepresentation
Tele marketing etiquettes
No calls prior to 930 am or post 1900hours
During call lot of etiquettes to be followed
Gifts or bribes should not be accepted by DSAs
154. Marketing information system
Functions of MKIS
Collecting and assembling data
Processing data
Analysing the data
Storaging the data
Dissemination of information
Components of MKIS
Internal Marketing information
Marketing Intelligence system
Marketing research system
