Scheduled Banks in India :

Scheduled Banks in India :

Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches.The scheduled commercial banks in India comprise of State bank of India and its associates (8), nationalised banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks.

"Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank"

The following are the Scheduled Banks in India: State Bank of India, Union Bank of India ,United Bank of India ,UCO Bank ,Vijaya Bank. ING Vysya Bank Ltd ,Axis Bank Ltd ,Indusind Bank Ltd ,ICICI Bank Ltd.

Treasury Bills :

T-bills are short-term securities that mature in one year or less from their issue date. They are issued with three-month, six-month and one-year maturities. T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value. Effectively, your interest is the difference between the purchase price of the security and what you get at maturity. For example, if you bought a 90-day T-bill at $9,800 and held it until maturity, you would earn $200 on your investment. This differs from coupon bonds, which pay interest semi-annually.

Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions. If you want to buy a T-bill, you submit a bid that is prepared either non-competitively or competitively. In non-competitive bidding, you'll receive the full amount of the security you want at the return determined at the auction. With competitive bidding, you have to specify the return that you would like to receive. If the return you specify is too high, you might not receive any securities, or just a portion of what you bid for. The only downside to T-bills is that you won't get a great return because Treasuries are exceptionally safe.

Contra assets in bank balance sheet;A contra asset is a negative asset account that is designed to offset the balance in the asset account with which it is paired. The purpose of a contra asset account is to store a reserve that reduces the balance in the paired account. By stating this information separately in a contra asset account, a user of financial information can see the extent to which a paired asset should be reduced. The natural balance in a contra asset account is a credit balance, as opposed to the natural debit balance in all other asset accounts. There is no reason for there to ever be a debit balance in a contra asset account; thus, a debit balance probably indicates an incorrect accounting entry. When a contra asset transaction is created, the offset is a charge to the income statement, which reduces profits. The proper size of a contra asset account can be the subject of considerable discussion between a company controller and the company's auditors. example, the accumulated depreciation account is a contra asset account, and it is paired with the fixed assets account. When combined, the two accounts show the net book value of a company's fixed assets. Note: It is customary to have one accumulated depreciation account and multiple fixed asset accounts with which it is linked. Examples of other contra assets are: accumulated depletion, Reserve for obsolete inventory

Market segments of money market in India are:Call Money Market,Treasury Bills Market,Commercial Bills Market,Inter-Bank Participation Certificates,Certificates of Deposits (CDs), Commercial Papers (CPs)

Call money is short-term finance repayable on demand, with a maturity period of one to fifteen days, used for inter-bank transactions. The money that is lent for one day in this market is known as "call money" and, if it exceeds one day, is referred to as "notice money." Commercial banks have to maintain a minimum cash balance known as the cash reserve ratio. The Reserve Bank of India changes the cash ratio from time to time, which, in turn, affects the amount of funds available to be given as loans by commercial banks.Call money is a method by which banks lend to each other to be able to maintain the cash reserve ratio. The interest rate paid on call money is known as the call rate. It is a highly volatile rate that varies from day to day and sometimes even from hour to hour. There is an inverse relationship between call rates and other short-term money market instruments such as certificates of deposit and commercial paper. A rise in call money rates makes other sources of finance, such as commercial paper and certificates of deposit, cheaper in comparison for banks to raise funds from these sources.

Currency deposits- CDs are negotiable money market instrument issued in demat form or as a Usance Promissory Notes. CDs issued by banks should not have the maturity less than seven days and not more than one year. Financial Institutions are allowed to issue CDs for a period between 1 year and up to 3 years.

CDs are like bank term deposits but unlike traditional time deposits these are freely negotiable and are often referred to as Negotiable Certificates of Deposit. CDs normally give a higher return than Bank term deposit. CDs are rated by approved rating agencies (e.g. CARE, ICRA, CRISIL)

Payment System and Monetary Policy Payment and settlement systems are to economic activity what roads are to traffic, necessary but typically taken for granted unless they cause an accident or bottlenecks develop Bank for International Settlements (1994). Banks administer payment systems which are core to an economy. Through payment system: banks execute customers payment instructions by transferring funds between their accounts,,, customers receive payments and pay for the goods and services by cheques, credit or debit cards or orders ,,funds to flow between individuals, retail business and wholesale markets quickly and safely.The system should ensure a high degree of security and operational reliability and shouldhave contingency arrangements for timely completion of daily processing.The system should provide a means of making payments which is practical for its usersand efficient for the economy.. The system should have objective and publicly disclosed criteria for participation, whichpermit fair and open access.The systems governance arrangements should be effective, accountable andtransparent

Busness segmentation of banks

Retail banking--it includes exposures to individuals or small businesses. Retail banking activities are identified based on four criteria of orientation, granularity, product criterion and low value of individual exposures. In essence, these qualifiers imply that retail exposures should be to individuals or small businesses.

Wholesale banking--Wholesale banking includes high ticket exposures primarily to corporates. Internal processes of most banks classify wholesale banking into mid corporates and large corporates according to the size of exposure to the clients. A large portion of wholesale banking clients also account for off balance sheet businesses. Hedging solutions form a significant portion of exposures coming from corporates. Hence, wholesale banking clients are strategic for the banks with the view to gain other business from them.Treasury Operations

Treasury operations include investments in debt market (sovereign and corporate), equity market, mutual funds, derivatives, and trading and forex operations. These functions can be proprietary activities, or can be undertaken on customers account. Treasury operations are important for managing the funding of the bank. Apart from core banking activities, which comprises primarily of lending, deposit taking functions and services; treasury income is a significant component of the earnings of banks. Other Banking Businesses

This is considered as a residual category which includes all those businesses of banks that do not fall under any of the aforesaid categories. This category includes para banking activities like hire purchase activities, leasing business, merchant banking, factoring activities etc.

Treasury and funds management in banks

Treasury generally refers to the funds and revenue at the disposal of the bank and day-to-day management of the same.

The treasury acts as the custodian of cash and other liquid assets.

The art of managing, within the acceptable level of risk, the consolidated fund of the bank optimally and profitably is called Treasury Management.

It is the window through which banks raise funds or place funds for its operations.Functions of an integrated treasury---Reserve Management and Investment

,Liquidity and Funds Management,Asset-Liability Management,Risk Management,Transfer Pricing,Derivatives Trading,Arbitrage,Capital Adequacy

Regulatory role of RBI and its monetary policy

RBI was constituted for the need of following :To regulate the issue of banknotes,To maintain reserves with a view to securing monetary stability ,To operate the credit and currency system of the country, to its advantage.Main functions :Bank of Issue,Banker to Government,Bankers' Bank and Lender of the Last Resort,Controller of Credit,Custodian of Foreign Reserves,Supervisory functions,Promotional functionsMonetary policy of India :

Monetary policy is the process by which monetary authority of a country, generally a central bank controls the supply of money in the economy by exercising its control over interest rates in order to maintain price stability and achieve high economic growth. In India, the central monetary authority is the Reserve Bank of India (RBI).

Monetary policy is so designed as to maintain the price stability in the economy. Other objectives of the monetary policy of India, as stated by RBI, are:

Price Stability ,Controlled Expansion of Bank Credit,Desired Distribution of Credit ,Equitable Distribution of Credit ,Promotion of Fixed Investment

Assets Reconstruction Companies :

Need : In the banking system, high level of NPAs can be serious drag on overall performance of economy on account of diversion of its management and financial resources towards recovery of NPAs. Greater the resources needed by banks to reserve for losses, lesser is the amount of capital they can leverage. Consequently it makes the banks risk averse in providing new loans leading to credit crunch in the financial market, amounting to economic and financial degradation.Benefits

Relieving banks of the burden of NPAs would allow them to focus better on managing the core business including new business opportunities..The transfer should help restore depositor and investor confidence by ensuring the lenders financial health. ARCs are meant to maximise recovery value while minimizing costs.ARCs can also help build industry expertise in loan resolution, besides serving as a catalyst for important legal reforms in bankruptcy procedures and loan collection.ARCs can play an important role in developing capital markets through secondary asset instruments.

REPO RATE & REVERSE REPO RATE

Whenever the banks have any shortage of funds they can borrow it from RBI.Repo rateis the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensiveReverse Repo rateis the rate at which theRBIborrows money from commercial banks. Banks are always happy to lend money to the RBI since their money are in safe hands with a good interest.An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.Repo rate and inflation: When the repo rate is raised, banks are compelled to pay higher interest to the RBI which in turn prompts them to raise the interest rates on loans they offer to customers. The customers then are dissuaded in taking credit from banks, leading to a shortage of money in the economy and less liquidity. So, while on the one hand, inflation is under controlled as there is less money to spend, growth suffers as companies avoid taking loans at high rates, leading to a shortfall in production and expansion. The RBI revises CRR and repo rates in their quarterly and mid-quarter policy reviews to maintain a balance between growth and inflation. The past two years have been proof of this practice as the apex bank tried to first tame the monster of inflation with aggressive rate hikes, and once it saw growth taking a hit, reduced key rates to revive the economy.

Foreign Exchange Markets :

Buying / selling foreign exchange ,Hedging exposures through derivatives,Speculation trading,Exchange Rate Risk,Fast changing exchange rates,Unpredictable ,Source of Exchange Rate Risk,24 hour Market - Global Market 5 days in a week,Day opens at Tokyo and Sydney,Day closes at Los Angeles trading,Before closing at Los Angeles, Sydney opens up for the next dayA two-way price is a term most often used in the currency trading markets, but can also be found in trading bonds. A two-way price is when an investor is given the best bid and ask price for a currency. Using this information an investor can decide whether to make a sale of a given currency if the difference between the two would represent profit for him. The difference between the two-way price is often called the spread, and can be only hundredth of a unit of measure of a given currency, known as a pip. While often small differences, these amounts add up quickly in large volume exchanges of international currencies such as those executed by major banks. The amount of value that compromises the two way price is based on the current value of the currency involved in the quote at that given moment. With this in mind, a two way price quote will change if not executed very quickly after its issuance.What is ALM ? ALM is a comprehensive and dynamic framework for measuring, monitoring and managing the market risk of a bank. It is the management of structure of balance sheet (liabilities and assets) in such a way that the net earning from interest is maximised within the overall risk-preference (present and future) of the institutions. The ALM functions extend to liquidly risk management, management of market risk, trading risk management, funding and capital planning and profit planning and growth projection. Benefits of ALM - It is a tool that enables bank managements to take business decisions in a more informed framework with an eye on the risks that bank is exposed to. It is an integrated approach to financial management, requiring simultaneous decisions about the types of amounts of financial assets and liabilities - both mix and volume - with the complexities of the financial markets in which the institution operates.The ALM process rests on three pillars:ALM Information Systems--Management Information Systems,Information availability, accuracy, adequacy and expediencyALM Organisation--Structure and responsibilities,Level of top management involvementALM Process--Risk parameters,,Risk identification,,Risk measurement,Risk management,Risk policies and tolerance levels.

,Crr and slr-- CRR means Cash Reserve Ratio. Banks in India are required to hold a certain proportion of their deposits in the form of cash. However, actually Banks dont hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivlanet to holding cash with RBI. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Slr----banks are required to invest a certain percentage of their time and demand deposits in assets specified by RBI, including gold, and government bonds and securities. In monetary jargon, SLR is that percentage of net demand and time liabilities (NDTL); in other words, bank deposits, that must be used to buy specified assets. The SLR ratio has been in a range of 23-25% for the past 10 years. The current SLR ratio of 22.5%, which means that for every Rs.100 deposited in a bank, it has to invest Rs.22.50 in any of the asset classes approved by RBI. Banks usually keep more than the required SLR, and at present, the actual SLR stands at 29%CASA AND WAYS TO IMPROVE--usually CASA has to be divided in two parts like NCA and ERV NCA needs to focus highly because its add up the incremental growth of your CASA., so focus to open some good nee accounts which gives more float..the key area of concentration needed are Current accounts (it gives 100% NII), TASC and Government accounts..its will defiantly helps you for your incremental CASA growth.. and the ERV part as usual you need to concentrate the service excellence to the existing clients..you may provide some other alternate services like offering Business loans, mortgage loans, property search etc to your present good clients..it will helps you to geeting additional float from the existing customers.. and also you need to monitor personally to your top 50 clients at your touch base..the same way your supportinates to be taking care of the rest..-------The CASA (current and savings account) ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits.[1]A high CASA ratio indicates that a higher portion of the banks deposits come from current and savings accounts. This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.

FUNCTIONS OF ALCO--The ALCO is a decision making unit responsible for balance sheet planning from risk -return perspective including the strategic management of interest rate and liquidity risks. Each bank will have to decide on the role of its ALCO, its responsibility as also the decisions to be taken by it. The business and risk management strategy of the bank should ensure that the bank operates within the limits / parameters set by the Board. The business issues that an ALCO would consider, inter alia, will include product pricing for both deposits and advances, desired maturity profile of the incremental assets and liabilities, etc. In addition to monitoring the risk levels of the bank, the ALCO should review the results of and progress in implementation of the decisions made in the previous meetings. The ALCO would also articulate the current interest rate view of the bank and base its decisions for future business strategy on this view. In respect of the funding policy, for instance, its responsibility would be to decide on source and mix of liabilities or sale of assets. Towards this end, it will have to develop a view on future direction of interest rate movements and decide on a funding mix between fixed vs floating rate funds, wholesale vs retail deposits, money market vs capital market funding, domestic vs foreign currency funding, etc. Individual banks will have to decide the frequency for holding their ALCO meetings.

co-operative bank ?

According to the International Co-operative Alliance Statementof co-operative identity, a co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.

The 7 co-operative features are :Voluntary and open membership,,Democratic member control,,Member economic participation,,Autonomy and independenc,,Education, training and information,,Co-operation among Co-operatives,,Concern for CommunityA co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts...).

Commericial Banks

According to the Indian Banking Company Act 1949, "A banking company means any company which transacts the business of banking . Banking means accepting for the purpose of lending of investment of deposits of money from the public, payable on demand or other wise and withdraw able by cheque, draft or otherwise."

Endonment vs Annuity policy

Death Benefit-An endowment is a life insurance policy with cash value and an annuity is a savings vehicle. Even though you have a savings aspect in an endowment policy, you also have a death benefit. If your family needs a specific amount of money by a certain date, the endowment pays it whether you live or die. The annuity simply pays your heirs the amount you put into the policy plus any return you made on the funds.Growth--The cash value in most annuities grows much faster than the cash in an endowment plan. The reason is simple: there is no cost of insurance to pay on the annuity.Resale--There's a large market for the resale of the endowment policies in several countries. This isn't true of annuities. Often investors pay more than the owner would receive if he cashed out the policy.Variety--Annuities offer more types of investments than endowments. Endowments are all guaranteed and use only fixed investments.Maturity-Endowments have a specific maturity date. Annuities run until you decide to cash them out, or reach 99 years of age.Popularity--Most people feel that the combination of an annuity and term life insurance fills their needs far better than an endowment policy. The cash and insurance coverage is often higher on both. Endowment policies are now rarely sold in the United States.