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Welcome to IIBF’s - JAIIB Virtual Classes. PRINCIPLES OF BANKING Module A & B April 15/2008. Financial System in India . Financial Sector consists of three main segments viz., 1) Financial institutions -banks, mutual funds, insurance companies 2) Financial markets -money market,

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welcome to iibf s jaiib virtual classes

Welcome toIIBF’s - JAIIB Virtual Classes


Module A & B

April 15/2008

financial system in india
Financial System in India
  • Financial Sector consists of three main segments viz.,
  • 1) Financial institutions -banks, mutual funds, insurance companies
  • 2) Financial markets -money market,

debt market,capital market, forex market

  • 3) Financial products -loans, deposits, bonds, equities
banking in india5
Banking in India

- Banking in India is governed by

BR Act,1949 and RBI Act,1934

- Banking in India is controlled/monitored

by RBI and Govt of India

- The controls for different banks are different

based on whether the bank/s is/are

a) statutory corporation

b) a banking company

c) a cooperative society

banking regulation act 1949 br act 1
Banking Regulation Act,1949 (BR Act)-1

- BR Act covers banking companies and

cooperative banks, with certain modifications.

- BR Act is not applicable to

a) primary agricultural credit societies b) land development banks

  • BR Act allows RBI (Sec 22) to issue

licence for banks

reserve bank of india act 1934 rbi act 1
Reserve Bank of India Act,1934(RBI Act)-1
  • RBI Act was enacted to constitute the

Reserve Bank of India

  • RBI Act has been amended from time to


  • RBI Act deals with the constitution,

powers and functions of RBI

reserve bank of india act 1934 rbi act 2
Reserve Bank of India Act,1934(RBI Act)-2
  • RBI Act deals with:
  • incorporation, capital management and

business of banks

  • central banking functions
  • financial supervision of banks and

financial institutions

  • management of forex/reserves
  • control functions : bank rate,audit,accounts
  • penalities for violation
reserve bank of india 1
Reserve Bank of India - 1
  • Reserve Bank of India was established in
  • 1935, after the enactment of the Reserve
  • Bank of India Act 1934 (RBI Act).
  • Banking Regulation Act,1949 (BR Act)gave wide powers to RBI as regards to establishment of new banks/mergers and amalgamation of banks,opening of new branches,etc
  • BR Act,1949 gave RBI powers to regulate,superivse and develop the banking system in India
money market instruments
Money Market Instruments
  • Inter bank call money/deposit
  • Inter bank notice money/deposit
  • Inter bank term money/deposit
  • Certificates of Deposit
  • Commercial Paper
  • Treasury Bills
  • Bill rediscounting
  • Repos
certificates of deposit
Certificates of Deposit
  • CDs are short-term borrowings in the form of UPN issued by scheduled commercial banks and are freely transferable by endorsement and delivery.
  • Introduced in 1989
  • Minimum period 7 days and maximum period one year. FIs are allowed to issue CDs for a period between 1 year and up to 3 years
  • Minimum amount is Rs 1,00,000.00
  • Subject to payment of stamp duty under the Indian Stamp Act, 1899
  • Issued to individuals, corporations, trusts, funds and associations
  • Issued at a discount rate freely determined by the market/investors
commercial paper
Commercial Paper
  • Short-term borrowings by corporates, financial institutions, primary dealers from the money market
  • Can be issued in the physical form (Usance Promissory Note) or de mat format
  • Introduced in 1990
  • When issued in physical form are negotiable by endorsement and delivery and hence, highly flexible
  • Maturity is 7 days to 1 year
  • Unsecured and backed by credit rating of the issuing company
  • Issued at discount to the face value
  • Repo (repurchase agreement) instruments enable collateralised short-term borrowing through the selling of debt instruments
  • A security is sold with an agreement to repurchase it at a pre-determined date and rate
  • Reverse repo is a mirror image of repo and reflects the acquisition of a security with a simultaneous commitment to resell
indian capital market
  • Indian Capital Market plays an important role in the economic development of the country
  • It provides opportunities for investors to invest in the market and also to earn attractive rate of return.
  • It also creates source of funds for the various sectors
  • National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the major stock exchanges in India
securities exchange board of india sebi
Securities & Exchange Board of India (SEBI)
  • SEBI was constituted on April 12/1988, and obtained the statutory powers in March,1992
  • SEBI’s functions:
  • To protect the interests of investors
  • To recognize the business in stock exchanges and other security markets
  • To supervise and regulate work of intermediaries, such as stock brokers

merchant bankers/custodians

depositories/bankers to the issues

association of mutual funds in india amfi
Association of Mutual Funds in India (AMFI)
  • AMFI is an association as a non profit organization.
  • AMFI represents mutual funds in India and working for healthy growth of the Mutual Funds.
  • AMFI conduct examinations for MF executives as part of their training


insurance regulatory development authority irda
Insurance Regulatory & Development Authority (IRDA)
  • The regulator for insurance business in India is IRDA.
  • IRDA was established in 2000
  • IRDA’s functions:
  • To regulate, promote and ensure orderly growth of the insurance business and reinsurance business in India
  • To protect the interests of policy holders
insurance sector
Insurance Sector
  • Insurance Sector in India can be divided into two main sections
financial intermediaries 1
Financial Intermediaries (1)
  • Mutual Funds- As financial intermediary promote savings and mobilise funds which are invested in the stock market and bond market
  • MFs are associations or trusts of public members and assist them in making investments in the financial instruments of the business/corporate sector for the mutual benefit of its members.
  • MFs aims to reduce the risks in investments

Mutual funds help their investors to enhance their value by investing the funds in capital market.

  • Mutual funds offer various schemes: growth fund, income fund, balanced fund,sector wise funds, etc.,
  • Regulated by SEBI
financial intermediaries 2
Financial Intermediaries (2)
  • Merchant banking- Another important financial intermediary which manages and underwrites new issues, undertake syndication of credit, advise corporate clients on fund raising
  • Subject to regulation by SEBI and RBI
  • SEBI regulates them on issue activity and portfolio management of their business.
  • RBI supervises those merchant banks which are subsidiaries or affiliates of commercial banks
indian banking significant events 1
Indian Banking - Significant events 1
  • Three presidency banks were established in Calcutta (1806) in Bombay (1840) and in Madras (1843)
  • In the early part of 20th century, on account of the Swadeshi movement a number of join stock banks were established by Indians like Bank of India, Bank of Baroda and Central Bank of India.
  • In 1921 the three presidency banks were merged and the Imperial Bank of India was created.
  • During the period 1900 to 1925 many banks failed, and the Government appointed in 1929 a Central Banking Enquiry Committee to trace the reasons for the failure of banks.
  • The Reserve Bank of India Act was passed in 1934 and the RBI came into existence in 1935 and RBI was nationalised in 1949
  • The Banking Regulation Act,1949 gave wide powers to RBI to act as the regulator for banks in India
indian banking significant events 2
Indian Banking -Significant events 2
  • In 1955 State Bank of India became the successor to the Imperial Bank of India ,under the State Bank of India Act,1955.
  • In 1959 State Bank of India (Subsidiary Banks) Act was passed to enable SBI to take over State Associated banks as SBI’s subsidiaries
  • In 1969 the Government of India nationalised 14 major commercial banks having deposits of Rs.50 crore or more
  • In 1975 Regional Rural Banks were established under RRB Act 1976, which was preceded by RRB Ordinance in 1975
  • In 1980 six more commercial banks were nationalised, with a deposit of Rs.200 crore or more
progress of banking in india
Progress of banking in India
  • In the liberalised, privatised and globalised environment, banks opeating

in India have diversified their banking activities by offering Para Banking facilities like

    • Merchant banking/Mutual funds
    • ATMs/Credit Cards/Internet banking
    • Venture capital funds
    • Factoring
    • Bancassurance
classification of banks 3
Classification of Banks-3
  • Public Sector Banks =State Bank of India+SBI’s associate banks+

Nationalised banks

  • Private Sector Banks=Indian Private Sector Banks (Old/New generation banks)+Foreign banks in India
  • Other Banks=Regional Rural Banks(RRB)
reserve bank of india
  • Issuance of currency notes
  • Banker’s Banker
  • Lender of the last resort
  • Credit Control & Monetary Policy
  • Exchange Control & Forex Management
  • Funds Transfer
credit control
  • CRR & SLR
functions of banks 2
Functions of Banks - 2
  • Commercial Banks-Core Banking Functions
  • Acceptance of deposits from public
  • Lending funds to public/corporates
  • Investing funds in various opportunities
  • Collecting cheques/drafts and other Negotiable Instruments
  • Remitting funds
functions of banks 3
Functions of Banks-3
  • Commercial Banks – Para Banking Services
  • Providing safe deposit lockers
  • Acceptance of safe custody items
  • Acceptance of standing instructions
  • Offering internet banking facilities
  • Issuance of credit and other cards

including ATM cards

  • Offering various products like Mutual funds,insurance products, merchant banking services
  • Acting as executors and trustees
foreign currency non resident deposit accounts fcnr b
Foreign Currency Non-residentDeposit Accounts –FCNR (B)
  • FCNR (B) accounts
  • NRIs,PIOs,residing outside India can open FCNR (B) accounts
  • FCNR (B) accounts are maintained as fixed deposits in certain designated currencies
  • The designated currencies are:
  • US$, GBP, Japanese Yen, Euro, Cad$, Aus $
  • Maintained in Banks in India in the above

mentioned foreign currencies and interest is also earned in such foreign currencies

  • Repatriation of funds (principal, interest) is allowed
know your customer kyc 1
Know Your Customer (KYC) -1
  • KYC: Know Your Customer
  • Know your customer (KYC) norms are applicable to all types of customer a/cs.
  • It deals with not only to identify the customer but also to understand the activities of the customer, and to ensure that the operations in the customer

account/s is/are for genuine purpose

know your customer kyc 2
Know Your Customer (KYC) -2
  • Application of KYC norms have become

important due to various reasons.

  • In view of many issues on account of drugs smuggling, money laundering, terrorist activities, arms dealing,etc.,

banks need to be careful in dealing with their clients.

banker customer relationship
negotiable instruments








six cs
Six Cs
  • Character
  • Capital
  • Capacity
  • Collateral
  • Condition
  • Compliance
  • LIEN
srfaesi act 2002
SRFAESI Act,2002

- Securitisation and Reconstruction of

Financial Assets and Enforcement of

Security Interest Act (SRFAESI) was

enacted in 2002

_ Securitisation Company/Reconstruction

Company (SCRC) can finance the

acquistion from own resources or rise

sources from Qualified Institutional

Buyers (QIBs)

small medium enterprises smes
Small & Medium Enterprises (SMEs)
  • SMEs are classified based on Small & Medium Enterprises Development Act,2006
  • SMEs are divided into micro,small & medium sized entities.
  • SMEs are classified based on two categories

viz., manufacturing units and service companies.

  • In case of manufacturing units investments

in plant and machinery and for service companies investments in equipment are

considered for classification as SMEs

documentation 1
Documentation 1

- Loan documents are classified as

primary and secondary

- Documents are obtained based on the

type of credit facility/constitution of the borrower/nature of securities offered by the borrowers

- Documents should have a clear title

and can be valid to be enforced in a

court of law

- Wherever required documents need to be

stamped appropriately

  • Documents should be properly filled up and duly

executed by authorised persons.

documentation 2
Documentation 2
  • Documentary evidence as per Sec 61

of Evidence Act :

  • Primary: original documents needs to

be produced for inspection of court

b) Secondary:

- certified copies

- copies made from or compared with


all the best thank you
  • TEL : 022-25638965 (R)
  • 022-66364206 (O)
  • e.mail: t.varadarajan@scotiabank.com
  • tmc_varadarajan@yahoo.co.in