The document provides an overview of key concepts in banking and finance. It covers topics such as money, financial instruments, banking, retail banking services, mortgages, insurance, and the role of information technology in banking. The document aims to help technology professionals understand financial terms and the operations of the banking sector.
4. MONEY
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⚫ Standard unitof Exchange- advancement over bartersystem
⚫ Currencies-based upon development level of countries
⚫ Exchange Rates- Whodecides, Pegged currencies
⚫ Facevalueof currency
⚫ Standard Valuecurrency
⚫ Interestcharged on loan amount- Simpleand Compound
⚫ Simple- On Rs.100 by 10 percent, amount paid everyyear is Rs. 10
⚫ Compound- On Rs.100 by 10 percent, amount paid everyyearvaries
5. INFLATION
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⚫ Rise in cost of goodsand services overa period
⚫ Real rateof interest = Nominal rateof Interest-Inflation Rate
⚫ Nominal rateof interest = 10%
⚫ Inflation rate 4%
⚫ Real rateof interest = 6%
⚫ Increase in Prices reduces thevalue of currency
6. COST OF CAPITAL
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Land, Labor, CAPITAL, Enterprise(Idea)
⚫ Depends upon- Borrower, typeof financing, market timing, collateral,
tenure fordebt
⚫ Costof capital include following
⚫ Interest fordebt
⚫ Dividend, expected earning forequity
⚫ WACC- Weighted Average Costof Capital- If more thanone sourceof
finance is used.
⚫ WACC= Costof each*Weight
7. FINANCIAL INSTRUMENTS
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⚫ Capital- Business needs capital foroperations, fixed assets.
⚫ Methods bywhich capital can be raised
⚫ Debt
⚫ Bank Loans
⚫ Bond/Debentures: Fixed, Floating-rating, Corporate, Govt.
⚫ Equity
⚫ Ownersequity
⚫ Venture Capital
⚫ IPOs
⚫ Mutual Funds
9. DEBT
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⚫ Moneyowed by oneentity toother
⚫ Cost is interest
⚫ Debt is considered seniortoequity i.e. the intereston debt is paid
before thedividendson stock in caseof liquidationof assets
⚫ Examples- Bonds, Loan, Commercial papers
⚫ Investorschose between debtand equity based on their investment
objectives
10. BONDS
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⚫ An investorloans money toan entityata specific interestrate.
⚫ Small deposits from multiple people
⚫ Investmentceiling
⚫ Interest is generallypaid semiannually
⚫ Factors influencing coupon rate
⚫ Prevailing economic conditions
⚫ Issuers Credit rating (risk)
⚫ In return investorgets the bond/certificatewhich contains:
⚫ Interestrate (Coupon rate)
⚫ Maturitydate (Repayment date)
⚫ Faceamount
12. EQUITY
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⚫ Equity (Stock)- representsownership interest
⚫ Common Stock
⚫ Voting Rights
⚫ Majorityshareholdersmanageorganization
⚫ Popular
⚫ Corporations sells it through IPO
⚫ Can be traded in secondary markets-BSE, NYSE etc.
⚫ Preferred Stock
⚫ No voting rights
⚫ Fixed rate of return
13. MUTUAL FUNDS
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⚫ Investmentcompanies
⚫ Pool resources from individual investors
⚫ MF companies invest intodiversesectorof economy
⚫ Investorsareequally responsible for loss orgain
⚫ Dividendsearned aredistributed according tothe investment
⚫Hedge Fund
⚫A groupof investorswho take financial risks together in ordertotry
toearn a lotof money
14. DERIVATIVES
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⚫ It is acontract between twoor more parties
⚫ Obligation on buyerand seller
⚫ Forward
⚫ Agreementto buy/sell an asset in futureata specified price
⚫ Ex. MCX
⚫ Future
⚫ Agreementto buy/sell an asset in futureata futureprice
19. CENTRAL BANK
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⚫ Banker’s bank
⚫ Regulatortoother banks
⚫ Governments bank
⚫ Providestable monetaryand financial policy
⚫ Decides policy rates-Impacts money in the market
⚫ Protects rightsof theconsumerby supervising banking institution
⚫ Monitors inf lowand outf lowof foreigncurrencies
⚫ Clearing house facility
⚫ Bankerof last resort
⚫ Ex. RBI
20. HOW DO BANK EARN PROFITS?
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⚫ Difference in the rateof interest between depositorsand lenders
⚫ Numberof products
⚫ Through investmentof its resources
⚫ Fee based services
⚫ Net banking
⚫ Mobile banking
⚫ Demand Draft
⚫ Universal Banking
⚫ Commercial as well as investment banking services underone roof
21. BASEL FRAMEWORK
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⚫ BIS- Bank of International Settlement
⚫ Located in Basel, Switzerland
⚫ Fostersco-operationamong central banks and otheragencies in
pursuitof monetaryand financial stability.
⚫ A forum topromotediscussionand policyanalysis among central
banks and within the international financial community
⚫ Itsets standards for best practices in banking which areensured by
all banks
22. SERVICES OFFERED BY BANK
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1. Corporate banking
1. Trade Finance
2. Cash Management
2. Retail Banking
1. Deposits
2. Branch & Electronic Banking
3. Creditcard services
4. Retail Lending- Home, Personal, Car
5. Private banking & wealth Management
6. Business banking for SMEs
3. InvestmentBanking
23. RETAIL BANKING
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⚫ Serves financial needs of individuals (Consumers) and SMEs
⚫ Largevolume lowvalue transactions
⚫ Productsand services
⚫ Deposits
⚫ Loans
⚫ Creditcards
⚫ Debitcards
⚫ Investment products
⚫ Local branches, ATMs
⚫ Net Banking
⚫ Mobile Banking
24. ASSETS AND LIABILITIES IN BANKING
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⚫ Liabilities- Money received by bank from depositors
⚫ Asset- Loans extended by bank
⚫ Revenue- Money that is maid byan organization in year
⚫ Liquidate- To sell a business/propertyespecially to pay off debt
⚫ Asset-Reconstruction-Here, the right or interest of any bank or financial
institution in any financial asset is acquired by the asset re-construction company for
the purpose of realization of dues.
⚫ NPA-Non-Performing Asset (bad loans)
⚫ An asset of a bank (such as a loan given by the bank) turns into NPAwhen it
ceases to generate regular income such as interest etc for the bank
⚫ Biggest challenge faced by Indian Public sector banks
⚫ Ex. Kingfisher owes 7000 crore to PSBs
25. DEPOSIT PRODUCTS
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⚫ Demand Deposits
⚫ Deposited and withdrawn on demand
⚫ Saving and Current
⚫ Term Deposit
⚫ Money kept with the bank fora specified period
⚫ Fixed Deposit
⚫ Attractivereturns
⚫ Ensurecapital availability for banks
⚫ D-MAT Account
⚫ Fortrading and of shares
⚫ No-Frill Accounts
⚫ Limited servicesata lowcost
⚫ Zero balanceaccounts
⚫ Jan-Dhanaccounts
27. BRANCH BANKING
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⚫ Teller Operations
⚫ Teller- Dealsdirectlywith consumers
⚫ Servesas front line in banking
⚫ Relationship Manager
⚫ Banks POC to thecustomer
⚫ Develops tailored banking solutions foreach client
28. CORE BANKING/MULTI-BRANCH BANKING
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⚫ Networkof bank which allowscustomerof a bank toperform
transactionatany branch of the same bank
⚫ Geographical constraintsare removed
⚫ Branch customerbecomes bank’scustomer
⚫ This is achieved througha set of softwarecalled banking applications
⚫ Ex. Finacle(Infosys)
29. ATM
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⚫ Computerized Telecommunication Device
⚫ Typical ATM Services
⚫ Cash withdrawal – Limit perday restricted by respective bank
guidelines
⚫ MoneyTransfer between accounts
⚫ Cash/ Check Deposits
⚫ Utility Bill Payments
⚫ Balance enquiry /Account Statements
⚫ Mobile Top Ups
⚫ VISA & Master networks are large global networks that serviceATMs.
⚫ Interbank operations aresettled in clearing house
31. ONLINE BANKING
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⚫ Financial transactionson a securewebsiteoperated by respective bank
⚫ Batch transactions – operations arecarried outwith least human
intervention
⚫ Bill Pay and Recurring payments
⚫ E-Tax
⚫ Statements : Monthlyorquarterly bank statements
⚫ Transaction history
⚫ Fund transfer
⚫ NEFT
⚫ RTGS
⚫ IMPS
⚫ IFSC- Indian Financial System Code
⚫ is an alpha-numericcode thatuniquely identifies a bank-branch
participating in the NEFT system.
32. FUND TRANSFER
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NEFT
⚫ National Electronic Fund
Transfer
⚫ No transaction limit
⚫ Nota immediate modeof
transfer during banksworking
hoursonly.
RTGS
⚫ Real Time Gross Settlement
⚫ There is minimumamount limit
⚫ Immediate modeof transfer
thoughduring working hoursof
bank
33. IMPS
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⚫ Immediate Payment Service
⚫ Instant money transferthrough mobile phone oronline
⚫ Mobile numberof remitterand beneficiary should be linked to their
respective bank accounts
⚫ Bestway fortransferring remittances
⚫ MMID- Mobile money identifier is generated
⚫ There is a limiton amountof transaction
⚫ SWIFT- Society forWorldwide Interbank Financial
Telecommunications
⚫ SWIFT transports messages between two financial institutions. This
activity involves the secureexchange of proprietarydatawhileensuring its
confidentiality and integrity
⚫ BIC- Uses Bank Identifier Code
34. INTERNATIONAL BANKING
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⚫ Facilitate importsand exportsof theirclients – trade financing
⚫ Arrangeforforeignexchange – cross-bordertransactionsand foreign
investments
⚫ Participate in international loan syndicate – lending to MNCs- project
financing and tosovereigngovernments – economicdevelopment
⚫ Trade foreignexchangeproducts fortheirownaccount
⚫ Gateway forthe transferof remittances byexpatriates
35. INVESTMENT BANKING
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⚫Functions
⚫ Private Equity
⚫ Buying/Selling
⚫ CorporateAdvisory
⚫ Managing company assets
⚫ Capital Raising
⚫ Underwriter
⚫ Security middlemen
⚫ Long term financing
⚫ Emerging Markets
⚫ Merger & Acquisitions
⚫ Ex. TechMahindra-Satyam, IGate-Patni, Facebook-Whatsapp
36. CARDS AND PAYMENTS
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⚫ Cards- Fastestgrowing means of non-cash payments
⚫ Non-cash payment instruments
⚫ Cheque
⚫ Debit card
⚫ Creditcard
⚫ C0-Branded cards- like creditcards associated with a particular firm
⚫ Affinitycard-Tie-up between a bank and an organization
⚫ Corporate/ Commercial card
⚫ Prepaid card- giftcard, mall cards
37. EMERGING PAYMENTS
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⚫ Internet Currencies/Digital cash/E-wallets
⚫ Preload accountwith money
⚫ Transfer moneyor make payments
⚫ Notime barrier
⚫ No need toentercard credentials
⚫ Ex. Paytm wallet
⚫ Contactless Payments
⚫ Radio Frequency ID
⚫ NearField Communication(NFC)
⚫ Eliminateswiping card, signing slipat the POS
⚫ Targeted ateliminating cash transactionsat retail counters
42. ROLE OF INFORMATION TECHNOLOGY (IT) IN
THE BANKING
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⚫ Competitivenesscompel toadapt to latest technologies
⚫ Instrumentof cost reduction
⚫ Effectivecommunicationwith people and institutionsassociated with
the banking business.
⚫ Bettermarket infrastructure
⚫ helps the financial intermediaries to reach geographicallydistantand
diversified markets in acosteffective manner
44. ⚫ Definition: Insurance is defined as theequitable transferof the risk
of a loss fromoneentity toanother in exchange forpayment
⚫ Terminologies:
⚫ Insurer: Insurancecompany selling the policy
⚫Insured: Policy holderortheentityavailing the policy
⚫ Re-Insurance: Insurance byanother insurerof all ora partof a risk
previouslyassumed by a insurancecompany
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45. CONTINUED…
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⚫ Premium: An amountcharged by insurerin ordertocoverinsured
againsta risk
⚫ Factorsdetermining premium amount:
⚫ The Frequencyof Claims (how many)
⚫ The Severity (Costof each Claim)
⚫ Condition of insurer, kind of policy, probabilityof risk, etc.
⚫ Underwriter: Person whoapproves thepolicy and determines the
premium to becharged againstacoverage.
⚫ Claim: Request by insured in ordertoseek policy benefits from insurer
⚫ Adjudicator: One who processes orsettles theclaims.